Bitcoin begins to bounce back from worst trading week, IRS zeroes in on crypto fraud

Yahoo Finance crypto reporter David Hollerith sheds light on how cryptocurrency investors are reacting to bitcoin's 20 percent drop since the cryptocurrency's October record and the IRS seizing $3.5 billion in crypto-related fraud money.

Video transcript

AKIKO FUJITA: Welcome back to Yahoo Finance Live. Bitcoin is crawling its way back towards the $60,000 handle. But you see, still trading just above $58,000 right now after a big sell-off that we saw earlier this week. Bitcoin now headed for its worst week in six months. Let's bring in Yahoo Finance's David Hollerith, who's been tracking the price moves for us today. And David, we never want to make too much of one headline, but what do you attribute the latest moves to?

DAVID HOLLERITH: Yeah, Akiko, so, you know, I think part of looking at the Bitcoin price, you know, trying to predict what happens next, people want to piece together price data with the most recent news and sort of try and come up with a story. And I think we don't really have a clear story that's formed yet since we saw all-time highs last week for the asset after posting less or worse than expected CPI data. I think the market became a little bit euphoric. And there's a little bit less of a newsworthy event, so to speak, to price expectations on. And now, we saw a pullback earlier in the week. And that seemed more liquidity driven.

Now, also, as the price dropped, funding rates in derivatives tended to rise. And that might, looking back on it now, have predicted this downturn we've seen today. Now, obviously, the price was trading lower earlier this morning. It's recovered a little bit. Other major cryptocurrencies have also recovered. But in general, we're seeing resistance at lower ends of the 30-day moving average for Bitcoin. And that has signaled the possibility for maybe a deeper pullback.

One analyst I spoke to who said that, you know, given Bitcoin's gains since the summer, a move towards $50,000, so a decline by $10,000, that much, is actually not a big deal, and that the dips will probably attract more interest. But again, we're seeing headlines that are-- they're, obviously, not as bullish, based on what we saw last month.

So, you know, just picking through some of those, it is interesting to see a lot of people who are less short-term price checkers, they tend to see increased value in Bitcoin and cryptocurrency altogether. So I can talk through some of the headlines, too. We've also seen a lot of increased funding for companies this week.

JARED BLIKRE: Well, David, I want to talk about an article you're writing for Yahoo Finance today. Everybody should check it out. It's on our website, YahooFinance.com. It's about the IRS seizing $3 and 1/2 billion in crypto-related fraud money this year. And that also includes some fraud in the DeFi space. Can you break it down for us?

DAVID HOLLERITH: Yeah, so it's interesting. You know, it's people often historically have thought of cryptocurrency as having illicit tendencies and tracks a lot of illicit flows. But, you know, Chainalysis, a blockchain analytics company, who tracks illicit flows-- they are some of the best in the industry-- they've proven out that there's really only about 1% of cryptocurrency that can be attributed to illicit transactions.

Now, the thing here to understand is that the asset class has quadrupled in market value over the last year. And what that means is that 1% is obviously a lot more. Now, we don't have conclusive data about what this year's illicit flow activity looks like yet, but just based on the 1% number from 2020, you know, this would be roughly $20 billion.

Now, this plays into the IRS's recent report. The IRS CI, so their Criminal Investigative unit, seized $3.5 billion, as you said, for the fiscal year of 2021. And that was 93% of the total funds they seized. So cryptocurrency is actually becoming a huge focus for the IRS. It's also interesting, I've spoken with lead investigators at the agency. And what it sounds like is that they are looking to basically gain more of a specialization for the agents in their unit to get better at sort of sniffing out cryptocurrency-related crimes.

The interesting thing here, though, to understand, I think, is that this has a lot to do with the rise of the market. It's not something that we should necessarily attribute to, you know, overall cryptocurrency or the asset class being [INAUDIBLE]. There's just a lot more.

JARED BLIKRE: All right, we're going to leave it there. But thank you for all that information, Yahoo Finance's David Hollerith.