15:14Will crypto recover? What experts predict will happen to Bitcoin price after market suffers dramatic crash
Bitcoin has recovered slightly after losing almost a quarter of its value in little over 24 hours, and is currently hovering around $40,000 (£28,000).
The world’s largest cryptocurrency was standing at $45,500 (£32,000) on Tuesday, but tumbled below $35,000 (£25,000) yesterday.
Other cryptocurrencies followed suit, with Ethereum and Dogecoin also losing more than a fifth of their value.
The last two weeks have brought the crypto market back to earth after a roaring start to 2021.
Bitcoin is still worth four times what it was at this time last year, but the crash – which has been caused by a Chinese crackdown on cryptocurrency – has some market analysts and investors concerned.
Why has cryptocurrency fallen?
On Wednesday, Chinese regulators stepped up efforts to crack down on financial institutions offering crypto services.
In a joint statement published on the People’s Bank of China’s WeChat account, banking and internet industry associations said that financial institutions should not accept cryptocurrencies as payment or offer services related to them.
“Recently, cryptocurrency prices have skyrocketed and plummeted and speculative trading of cryptocurrency has rebounded, seriously infringing on the safety of people’s property and disrupting the normal economic and financial order,” it said.
It added that cryptocurrency is not real currency and “should not and cannot be used as currency in the market”.
The move comes as China gears up to launch its own digital currency. Many see the crackdown on existing cryptocurrencies as an attempt to limit competition.
The Chinese Government is planning to create a digital renminbi, which would allow the central bank to track all transactions as they happen.
Bitcoin also suffered an initial crash last week, after Elon Musk raised environmental concerns about the cryptocurrency and said Tesla would no longer be accepting payments in Bitcoin.
Musk has frequently shown an ability to move the crpto market with social media posts – a marker of its volatility.
Can it recover?
Cryptocurrency is known for falling and recovering – this has happened to Bitcoin many times before.
The volatility of the market makes it almost impossible to predict. It could recover and rise above previous record highs, or it could crash and never come back.
This is why cryptocurrency is a risky investment, and you should only ever put in what you can afford to lose.
Analysts at JPMorgan have said “institutional investors appear to be shifting away from bitcoin and back into traditional gold”.
Meanwhile Henri Arslanian, global head of crypto at PwC consultants, told the Financial Times other regulators could follow in China’s footsteps and come down hard on the crypto market.
“I would not be surprised to see other regulators and policymakers do the same over the coming weeks as they warn investors over the risks of speculative trading or crypto market volatility,” he said.
“The reality is that we are seeing the continuous entry of institutional players and institutional investors in this space and that is unlikely to slow down anytime soon.”
Neil Wilson of Markets.com told BBC News: “China has for some time been putting pressure on the crypto space, but this marks an intensification – other countries might follow now as central banks make strides towards their own digital currencies.
“Until now, Western regulators have been pretty relaxed about Bitcoin, but this might change soon.”
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