Why is the cryptocurrency market down today?

THE crypto market has dropped today amid fears that US central bank support, which had helped boost riskier assets, could end sooner than expected to curb rising inflation.

The price of Bitcoin, the biggest cryptocurrency on the market, is now trading at $57,088 after hitting a record high of more than $69,000 last month.

AFP
Bitcoin and other major cryptocurrencies are down in value[/caption]

Cardano, XRP, and Shiba Inu are also down today, according to Coinmarketcap.

It comes as the US Federal Reserve said it could speed up the end of its bond buying, or quantitative easing, programme.

This forms part of its efforts to tackle rising inflation.

But it could be a bad sign for cryptocurrencies as quantitative easing usually pushes down interest rates on bonds, which has historically led to investors flocking to riskier assets with higher returns.

The crypto market is also still recovering after India announced plans to ban all private cryptocurrencies – aside from a few exceptions – and launch a central bank backed official digital currency.

Meanwhile, Ethereum is down 2.99% today and Dogecoin is up 1.47%.

Cryptocurrencies are highly volatile, meaning their values often make large swings with no notice, as the latest plunge shows.

Investing in cryptocurrency is a very risky business.

You can be left with less money than you put in, and could even lose it all.

You might not be able to access your investment if platforms go down and you could be left unable to convert crypto back into cash.

There have also been warnings around scams related to cryptocurrencies, with people losing vast sums of money.

You should never invest in something you don’t understand and you should never put in money that you can’t afford to lose entirely.

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Why have the crypto markets been down?

Aside from the scaling back of monetary support in the US and the news out of India – cryptocurrencies have been enduring volatility lately.

And there a few reasons why.

One, Twitter’s chief financial officer Ned Segal said investing in crypto “doesn’t make sense right now”, causing concern among Silicon Valley buyers.

China also announced plans to clean up virtual currency mining, according to CNBC.

Previous moves by the country to crackdown on mining and trading of crypto has previously sent markets plunging.

Meanwhile, US regulator the Securities and Exchange Commission (SEC), stopped a fund listing in November that would track the price of Bitcoin.

If successfully listed, the fund would have enabled investors to enjoy any gains – or suffer falls – in the price of Bitcoin, without having to hold the cryptocurrency directly themselves.

But the exchange traded fund (ETF) was rejected by the SEC, which is sceptical about the cryptocurrency.

Matthew Dibb, COO and co-founder of Stack Funds, told CoinDesk Bitcoin will likely fall further.

He said: “We have noticed some larger sales occur on Bitfinex as well as openings of new short positions.

“While liquidations so far are quite low by historical standard and funding rates are approaching flat, we could see a further cool-off in BTC for the short term as momentum is beginning to stall.”

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.

Kunal Sawhney, chief executive officer of equities research firm Kalkine Group, told Yahoo Finance that a 5% to 10% correction was “quite normal,” given the surge in trading in the previous month.

The major cryptos have dropped before following a global sell-off in stock markets.

That came after the struggling Evergrande property giant in China sparked wider fears for the global economy.

Snowed under a huge debt pile, a business default could hurt more than just China and it’s also sparked fears it could affect the crypto markets.

China announced a ban on cryptocurrencies in September, when JP Morgan analysts also warned that the markets were due a correction following “retail investor mania”.

And in August, hackers stole $600million in a cryptocurrency heist after spotting a “vulnerability” in a blockchain site.

That came after a series of worldwide crackdowns on the cryptocurrency market, and another big sell-off in global stock markets.

Many crypto-mining regions in China are radically reducing operations.

Miners create new cryptocurrencies using a complex computer code in a complex process, which is highly energy intensive and requires a lot of computer power.

Authorities in the China’s southwest province of Sichuan ordered crypto-mining projects to close earlier this summer.

It followed on from Beijing declared war on Bitcoin mining and trading as part of a series of measures to control financial risks.

Iran has also banned the mining of cryptocurrencies including Bitcoin for nearly four months because the country faces major blackouts and mining uses lots of power.

Coins took another big blow in April when Turkey’s central bank banned the use of cryptocurrencies for purchases.

From Dogecoin and Litecoin to Bitcoin – here are the different cryptocurrencies explained.

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