Will the cryptocurrency market recover?

CRYPTOCURRENCIES have dropped in value again, proving the volatile nature of coins like Bitcoin, Dogecoin and Ethereum.

After hitting record highs in April, the cryptocurrency market has faced a series of worldwide crackdowns.

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It then dropped following a big sell-off in global stock markets last month.

Around the same time, the Met Police also seized nearly £180million in the largest-ever cryptocurrency raid in the UK.

The extreme volatility and the accompanying sudden market falls are one of the reasons that investing in cryptocurrency is a very risky business.

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

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.

Which cryptocurrencies have dropped in value?

The price of Bitcoin is down by 2.19% over the past 24 hours, according to Coinmarketcap.

It's currently sitting at a value of $37,719, and has almost halved in value since it reached $64,000 in April.

The second biggest cryptocurrency Ethereum has also dropped in value in the last 24 hours and so have other popular coins like Dogecoin and XRP.

Ethereum is down by about 0.67%, trading at $2,467 at the time of writing, while Dogecoin is down 1.36% at $0.1951.

Dogecoin's rival, Shiba Inu, is also down 1.65% at $0.00000614.

It comes after a series of hammer blows to a number of coins since theypeaked in April this year.

Why are they down?

Most recently, stock markets dived as investors sold off a large number of assets in a short amount of time, which affected cryptocurrencies too.

Last month, the Met Police also seized nearly £180million in the largest-ever cryptocurrency raid in the UK.

Meanwhile, the world’s biggest cryptocurrency exchange, Binance, was banned from operating in the UK by the financial watchdog in June.

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.

Will the crypto markets recover?

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 founder Elon Musk revealed that Tesla would no longer accept it as payment.

However, many are still trading far above their value in late 2020.

Whether they'll recover to April levels remains to be seen, depending on plenty of factors affecting their value.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, told The Sun in May: "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 added: "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, financial analyst at AJ Bell, added: "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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