Crypto newsletter: Bitcoin falls below 40k amid concerns over US infrastructure bill

• Crypto tax slipped into $1T Infrastructure Bill
• China intends to maintain pressure on the cryptocurrency market
• Bank Of America believes El Salvador's decision to adopt Bitcoin is right

The past week was a positive one for the cryptocurrency market. Sentiment improved amid rumors that retail giant Amazon is looking to accept bitcoin payments by year’s end and is looking at minting its own token by 2022. Despite the fact that Amazon denied these reports, the prices of the main cryptocurrencies continued to rise. The flagship cryptocurrency hit the highest level since May 20 at $42,465 on Saturday, although it failed to extend its recent winning streak and is currently trading around $39,500 levels. Bitcoin's market dominance increased to 46.3%. The capitalization of all digital assets in circulation rose to 1.60 trillion, while an average daily trading volume is registered at $84.4 billion.

Bitcoin market dominance moves slightly higher. Source: Coinmarketcap.com

Cryptocurrency tax bill that could be ratified by U.S. lawmakers this week

Bitcoin started this week on the back foot as some traders decided to cash their recent profit amid tensions over a proposed U.S. infrastructure bill, which could negatively affect the cryptocurrency community. The bill, currently under review by the Senate, aims to increase tax revenues to finance over $ 1 trillion in infrastructure improvements nationwide, of which $ 28 billion would come from crypto transactions. Yesterday evening an updated version of the bill was revealed and new regulation seeks to narrow the definition of “broker” to people who provide digital asset transfers. The bill’s revised language does not explicitly include decentralized exchanges, nor does it explicitly exclude miners, node operators, software developers, or similar parties. Some market participants still believe that the bill is too broad and could apply to most economic activity in the U.S. crypto industry.

PBOC pledge to maintain heavy regulatory pressure on cryptocurrencies

Also further news from China weighed on market sentiment. Over the weekend People's Bank of China announced that it will keep high pressure on crypto trading. The central bank said it will continue regulatory rectification work on the platform industry, promote green finance, open up financial markets, continue its de-risking campaign and pursue yuan internationalization and the rollout of the digital yuan.

BofA backs potential benefits of El-Salvador's bitcoin law

On the other hand, increased institutional demand and widespread adoption in financial transactions may provide fuel for future rally. Bloomberg reported earlier on, Germany set out a new law, effective August 2, allowing institutional funds to hold up to 20% of their assets in cryptocurrencies.

Meanwhile El Salvador’s new Bitcoin law has drawn attention from critics since the approval of the legislation. However Bank of America stated that there are some key opportunities that Bitcoin can offer to a country where more than 70% of the population does not have a bank account.  Bitcoin could further introduce a lowered cost of remittances, which was President Bukele’s primary goal. Currently, remittances from abroad comprise one-fifth of El Salvador’s gross domestic product. Salvadorans would, in turn, be able to receive a higher disposable income. Also the country could attract foreign direct investment flows as it becomes a major crypto mining hub in the future as it plans to leverage its geothermal energy from its volcanoes to mine Bitcoin. On the other hand, The International Monetary Fund (IMF) warns that there could be “dire consequences” of adopting Bitcoin as a national currency. Two IMF officials stated that any country granting cryptocurrencies legal tender status could be risking domestic prices becoming highly unstable.

Meanwhile fundamental indicators overwhelmingly favor bullish continuation, the latest data shows. The difficulty, arguably the key regulator of the network, saw its first positive adjustment since the May price crash this weekend — up 6%.

Bitcoin difficulty chart. Source: Blockchain

Also according to recent estimates the hash rate jumped back above 100 exahashes per second (EH/s) over the weekend. At its peak, hash rate hit 168 EH/s before dropping to post-China lows of 83 EH/s.

Bitcoin price rose sharply last week however buyers failed to break above resistance at $42,465 and price pulled back towards local support at $38,500 which coincides with 50 SMA ( green line) and lower limit of the 1:1 structure. Should break lower occur, then downward move may accelerate towards the major support zone around $36,500. Source: xStation5

Ethereum price broke above long-term downward trendline yesterday however buyers failed to uphold momentum and price bounced off the resistance at $2700 which coincides with 38.2 Fibonacci retracement of the downward wave which started in May. Source: xStation5