Monday 11 January 2021 3:52 pm

Bitcoin value slumps by a fifth as City watchdog warns of risk

Bitcoin was on track for its biggest one-day drop since March today, just hours after the City watchdog issued a warning about the “very high risk” of investing in crypto assets.

The digital currency slumped more than 19 per cent to $30,699, marking its lowest level since in a week.

Read more: City watchdog issues crypto warning as price of Bitcoin soars

The sell-off brought to an abrupt halt the recent rally that saw Bitcoin swell to a record $42,000 last week — more than double its price in early December.

Its recent success has been driven by increased interest from institutional investors, which often consider it an attractive hedging option against traditional financial markets.

Ethereum, the second largest cryptocurrency, today also fell as much as 23 per cent to a low of $985.

The sudden reversal of fortunes came after the Financial Conduct Authority (FCA) this morning said customers “should be prepared to lose all their money” if they invest in crypto assets, which are highly volatile and considered risky.

In addition to the risks of losing money, the FCA warned customers were unlikely to have access to the Financial Services Compensation Scheme or the Financial Ombudsman Service.

Both bodies can offer consumers compensation on regulated financial products if they are mis-sold or if something goes wrong.  

“Bitcoin’s rapid ascent and descent in just a few days underlines just how volatile the cryptocurrency is,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

“There is much speculation that Bitcoin will become more mainstream, especially with more institutional investors becoming involved, but the future of cryptocurrencies remains highly uncertain.

She added: “Bitcoin’s price is being driven primarily by future price speculation rather than an underlying use-case.”

Read more: Bitcoin tops $40,000 as record rally continues

But Anatoly Crachilov, co-founder and chief executive of Nickel Digital, insisted today’s losses were merely an “interim datapoint” in Bitcoin’s multi-year growth.

“Given the immutable monetary policy of Bitcoin protocol, its powerful store-of-value function, and increasing acceptance by the institutional investors, this market is positioned for a fundamental expansion cycle as Bitcoin increasingly becomes part of institutional portfolio allocations,” he said.

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