Bitcoin plunges for SEVENTH day in a row: Largest crypto-currency drops by 5% to a three-week low – and has shed more than half its value since start of the year
- Digital token fell as much as 7.7 per cent to $21,404 (£18,057) in early trading
- It then recovered slightly to reach $21,714 (£18,311) by just after 10.30am
- Crypto analysts suggested that a ‘risk off’ attitude could be behind the falls
Bitcoin plunged by more than five per cent this morning to hit a three-week low, leaving the troubled cryptocurrency down more than half since the start of the year.
The digital token fell as much as 7.7 per cent to $21,404 (£18,057) over a few minutes in early trading, before recovering slightly to reach $21,714 (£18,311) by just after 10.30am.
On January 1 a single Bitcoin cost $47,733 (£40,316).
The world’s second largest cryptocurrency, Ether, also fell today by 5.36 per cent to reach 1$,736 (£1,464).
It was not immediately clear which sparked the price falls, with the tech-heavy Nasdaq composite – traditionally seen as a barometer for the crypto market – added 0.2 per cent last night.
However, some analysts suggested it could be due to a ‘risk off’ attitude among crypto traders, with global markets also down today and the dollar – traditionally seen as a safe haven – experiencing a rally.
The MSCI world equity index, which tracks shares in 47 countries, is down 0.3 per cent today.
The FTSE 100 is treading water, marginally up 13.71 at 7555.56 at 10.45am.
Equity investors are cautious after US Federal Reserve officials signalled there was more work to do on interest rates, with the only difference being on how fast and high to go.
The dollar benefitted from the Fed’s hawkish comments, hitting a one-month high. The dollar index was up 0.2 per cent at 107.7 and the euro was trading at $1.008.
The euro has lost 1.7 per cent versus the dollar so far this week.
Experts predicted Bitcoin could have further to fall.
‘In the short term, correlation risks are heightened as equities, especially technology names, are delicately poised at key resistance levels,’ Jamie Douglas Coutts, senior market structure analyst at Bloomberg Intelligence, wrote yesterday.
Ainsley To, Marc Chan and Noelle Acheson, from Genesis Trading, added: ‘After a steady climb in the first half of 2022, the amount of Bitcoin that has not moved in over a year has leveled off, signaling a pause in the accumulation behavior of longer-term investors.’
Bitcoin was the original digital currency started in 2009 to bypass central banks, and an increasing number of offshoot currencies have been founded in recent years as well as digital art called non-fungible tokens.
They have all been sharply decreasing in value over the past few days including one currency – Luna – that lost 99 per cent of its value as fears for the global economy spread and investors start to sell off risky assets.
The news sparked despair on crypto forums, with investors lamenting their lost fortunes.
All you need to know about cryptocurrency: How do you use it? Why is it popular? And why is it plunging in value
By Harry Howard for the MailOnline
What is cryptocurrency?
A cryptocurrency is a decentralised digital currency that can be used for transactions online.
It is the internet’s version of money – unique pieces of digital property that can be transferred from one person to another.
Unlike centralised currencies such as the Pound Sterling or the U.S. dollar, there is no governmental authority that manages cryptocurrencies or how much they are worth.
All cryptocurrencies use what is known as blockchain technology – an open ledger that records transactions in code.
Explaining the blockchain, crypto expert Buchi Okoro told Forbes: ‘Imagine a book where you write down everything you spend money on each day.
‘Each page is similar to a block, and the entire book, a group of pages, is a blockchain.’
The blockchain allows all records of transactions to be recorded and checked to prevent fraud.
How do you buy them?
Cryptocurrencies can be bought on what are known as exchanges, with Coinbase and Bitfinex being among the most popular.
Exchanges allow ordinary people with little knowledge of the technical aspects of cryptos to buy them simply.
The exchanges allow traders to buy fractions of coins rather than whole ones.
It means they can spend as little as much as they like – rather than forking out what could be tens of thousands of pounds if they were to buy a whole coin.
However, most exchanges charge a fee to invest.
Generally, this is a small percentage of the amount of crypto purchased, along with a flat fee depending on the size of the transaction.
In the UK, Coinbase charges a 3.9 per cent fee for orders over £200 that are bought using a debit card.
Purchases through a UK bank transfer incur a smaller 1.4 per cent commission.
What can you use cryptocurrencies for?
Cryptocurrencies can be used to make purchases and to send money abroad.
However, at present, most retailers do not accept the likes of bitcoin as a form of currency.
One way to get around this is to exchanging cryptocurrencies for gift cards that can then be used at ordinary retailers.
Crypto debit cards can also be used to make purchases. The cards are preloaded with a cryptocurrency of your choice.
Whilst the user spends their cryptocurrency, the retailer will receive ordinary money as payment.
Cryptocurrencies are also increasingly regarded as a form of investment, although experts caution about their volatility.
Bitcoin has long been referred to as ‘digital gold’ by fans because of the fact that, like the precious metal, it is regarded by some as a good store of value.
However, given it’s extreme volatility and rapid price falls in recent months the term is now used ironically by many.
Why are cryptocurrencies popular?
Cryptocurrencies are popular in part because they remove the role of central banks and governments from the supply of money.
With cryptos such as bitcoin, there is a fixed number of coins that ever be produced, which supporters claim makes them invulnerable to inflation.
There is no central authority that suddenly devalue the currency by producing many more coins.
Another reason for their popularity is the fact that whilst governments can freeze bank accounts or even confiscate money from individuals, cryptocurrencies generally remain out of their reach.
This has however made cryptos such as bitcoin also popular with criminals wishing to hide assets from authorities.
Cryptocurrencies are also popular because there is no need to open a bank account to start trading them.
A final aspect contributing to their popularity is of course the ability to make large amounts of money investing in cryptocurrencies.
As an example, despite its recent plummet, bitcoin has still risen in value by nearly 11,000 per cent since its 2009 creation.
What is Bitcoin mining?
People create bitcoins and other cryptocurrencies through what is known as mining.
Mining is the process of solving complex math problems using computers running bitcoin software.
These mining puzzles get increasingly harder as more bitcoins enter circulation.
Each time a puzzle is solved, a new groups of transactions – known as blocks – are added to the blockchain (the shared transaction record).
Miners are rewarded by being issued with bitcoin.
However, mining is now out of reach of most ordinary people because of the immense cost involved.
Spencer Montgomery, founder of Uinta Crypto Consulting, told Forbes: ‘As the Bitcoin network grows, it gets more complicated, and more processing power is required.
‘The average consumer used to be able to do this, but now it’s just too expensive.’
Bitcoin mining also uses an enormous amount of energy, estimated to be around 0.21 per cent of all the world’s electricity.
This is similar to the amount of energy used by Switzerland each year.
Are there any crypto billionaires?
According to Forbes, there are 19 individuals in the world who have become billionaires through cryptocurrencies.
The richest is Canadian citizen Changpeng Zhao, is said to be worth $65billion.
He is the founder of Binance, which is the largest cryptocurrency exchange in the world when measured by daily trading volume.
Zaho also owns a relatively small amount of bitcoin himself.
Other crypto billionaires include Sam Bankman-Fried, the founder of FTX, which is another cryptocurrency exchange.
He is believed to be worth an estimated $24billion. As well as owning half of FTX, he also owns $7billion of FTT, FTX’s native cryptocurrency.
Coinbase founder Brian Armstrong has also become a billionaire, with a net worth of $6.6billion.
A third individual to have made money from the world of crypto is Gary Wang, who is the co-founder of FTX.
Before his foray into cryptocurrencies, Wang was an engineer at Google. He is worth around $5.9billion.
Why are cryptocurrencies crashing, and is this linked to the wider economy?
Many fans of bitcoin had argued that because it has no central authority and is not controlled by central banks, it would hold its value through economic dips, global conflicts or policy changes.
However, this has proven not to be the case. In recent years, bitcoin’s volatility has followed similar rises and falls in stock markets.
As an example, when the coronavirus pandemic struck in March 2020 and global markets plummeted, so too did bitcoin.
But both stock markets and cryptocurrencies then recovered more or less in parallel.
Bitcoin’s fall in recent weeks has again mirrored declines in the Dow, Nasdaq and S&P 500.
Part of the volatility is being caused by Russia’s invasion of Ukraine and the effect this has had on supply chains and oil prices.
Whilst some crypto fans hope that bitcoin’s price will at some point decouple from the stock market as it previously had been, this has so far not been the case.
Bitcoin’s value also fell when China cracked down on bitcoin mining in mid-2021 and plummeted again when Tesla founder Elon Musk said last year that his firm would no longer accept bitcoin for payments due to environmental concerns.
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