Will the cryptocurrency market recover?07/14/2021
CRYPTOCURRENCIES have plunged in value once again, proving the volatile nature of coins like Bitcoin, Dogecoin and Etherum.
After hitting record highs in April, the cryptocurrency market has faced a series of worldwide crackdowns.
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The latest came as the Met Police seized nearly £180million in the largest-ever cryptocurrency raid in the UK last week.
The price of Bitcoin is down almost 4% over the past 24 hours and almost 9% in the last week
It currently around $31,925, according to Coinmarketcap, and has more than halved in value since it reached an all time high of more than $64,000 in April.
The second biggest cryptocurrency Etheruem has aslo dropped in value in the last 24 hours and so have other popular coins like Dogecoin, Cardano and XRP.
Ethereum is down by about 6.5%, trading at $1,898.76 at the time of writing, while Dogecoin is down 5.5% at $0.1935.
Dogecoin's rival, Shiba Inu, is also down 8% at $0.000006853.
It comes after a series of hammer blows to a number of coins since theypeaked in April this year.
The world’s biggest cryptocurrency exchange, Binance, was banned from operating in the UK by the country’s financial watchdog last month.
While Brits can still buy and trade coins on the platform, it means Binance is no longer allowed to "undertake any regulated activity" in the UK.
China is also getting tough on cryptocurrency mining – the energy intensive method of creating new coins.
A number of authorities across the country have ordered crypto-mining projects to close – including the Sichuan province.
Iran has banned the mining of cryptocurrencies including Bitcoin for nearly four months because the country faces major blackouts and mining uses lots of power.
Meanwhile, poster adverts for cryptocurrency platform Luno have been banned for failing to mention the risk of Bitcoin investments.
At the end of 2020 and start of 2021, Crypto markets had been experiencing a huge surge on the back of adoption among traditional financial firms.
The market reached record-breaking highs in April before plummeting dramatically in May, seeing billions wiped from their value.
This crash was sparked by China announcing a crackdown on cryptocurrencies and Bitcoin fan Elon Musk revealed that Tesla would no longer accept it as payment.
However, many are still trading far above their value in late 2020.
Dogecoin, which is trying to shed its image as a joke cryptocurrency, has soared more than 8,000% in 2021.
Yet, this volatility highlights the risky natre of investing in the market.
Crypto prices can go and up and down, and they can do so very quickly making it a big risk to invest in them.
5 risks of crypto investments
THE Financial Conduct Authority (FCA) has warned people about the risks of investing in cryptocurrencies.
- Consumer protection: Some investments advertising high returns based on cryptoassets may not be subject to regulation beyond anti-money laundering requirements.
- Price volatility: Significant price volatility in cryptoassets, combined with the inherent difficulties of valuing cryptoassets reliably, places consumers at a high risk of losses.
- Product complexity: The complexity of some products and services relating to cryptoassets can make it hard for consumers to understand the risks. There is no guarantee that cryptoassets can be converted back into cash. Converting a cryptoasset back to cash depends on demand and supply existing in the market.
- Charges and fees: Consumers should consider the impact of fees and charges on their investment which may be more than those for regulated investment products.
- Marketing materials: Firms may overstate the returns of products or understate the risks involved.
You should only ever invest money you can afford to lose and only put your money into financial products that you understand.
This isn't the only risk: your money is not protected and you can't complain to a regulator or ombudsman if something goes wrong, while fees and charges can be higher than with traditional investments.
There's also no guarantee you can convert crypto back into cash.
This year is not the first time that crypto markets have plunged after a boom.
Bitcoin previously experienced a crash in 2018 after going up in price in 2017.
Experts have highlighted that cryptocurrency prices are wildly unpredictable.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown told The Sun: "There is unlikely to be a smooth rebound from losses in this volatile environment."
What is Bitcoin?
BITCOIN got you baffled? Here’s what you need to know:
- Bitcoin is a virtual currency
- It's traded between people without the help of a bank
- Every transaction is recorded in a public ledger, or "blockchain"
- Bitcoin is created by mining
- Mining involves solving difficult maths problems using computer processors
- Bitcoin can be traded anonymously, which can make it a popular way of funding illegal activities
- The value of Bitcoin fluctuates wildly
- Bitcoin is one of many different cryptocurrencies, but by far the most popular
She said that other countries could follow China in cracking down on crypto which could hit values, and growing concerns around bitcoin's energy use could also drag down prices.
She said: "The direction of travel is though far from clear, as some crypto fans may see the recent falls as an opportunity to buy into their currencies at a cheaper price.
"Many cryptocurrencies and tokens are heralded as being part of the decentralised finance movement, which aims to disrupt current payment systems.
"In this murky world, where the use case of crypto currencies is far from proven, traders should only dabble with money they can afford to lose.’’
Laith Khalaf, a financial analyst at AJ Bell, said: "The difficulty with crypto is that the possible outcomes are extreme – either high loss or high return.
He added: "The difficulty is crypto offers little or no economic value in the here and now, and an extremely unpredictable value in the future, as its long term adoption by businesses and consumers is uncertain, to say the least."
Brits are being warned they risk losing all of their money if they invest in bitcoin and other cryptocurrencies.
It comes after a ban on some crypto-related investment products.
From Dogecoin and Litecoin to Bitcoin – here are the different cryptocurrencies explained.
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