Why is the cryptocurrency market down?

CRYPTOCURRENCY markets are down after recording major gains and reaching all-time highs since the start of the year.

Coins have dropped in value across the board in recent days – including Binance, Dogecoin and Bitcoin, with the latter down by 10%.

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Cryptocurrencies are volatile which means the price can rise and fall sharply.

You can be left with less money than you put in and remember, you should never invest money that you can't afford to lose.

There have also been warnings around scams related to cryptocurrencies.

Which cryptocurrency prices are down?

Bitcoin, the most popular cryptocurrency, has crashed following a shock announcement from Elon Musk.

Musk yesterday released a statement saying Tesla would no longer be accepting Bitcoin for purchasing vehicles.

Posting to his personal Twitter account, he wrote: "We are concern about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which ash the worst emissions of any fuel."

Within minutes Bitcoin started plummeting, presumably as much of the recent growth of the cryptocurrency was based on speculation of its future as a legitimate currency based off Tesla's decision to accept payments.

At the time of writing, Bitcoin dropped 10.8% to $50,899.31 within 24 hours, according to CoinMarketCap.

On April 14, Bitcoin hit record highs, surging above $64,000 for the first time ever.

But it has seen volatile crashes over the last weeks, including a huge one-day drop over the weekend of April 17 and 18.

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

Ethereum, the second-largest cryptocurrency, also hit record highs in mid-April rising to $2,547.

It has since risen even further to $3,983, but is currently down by 7.2% over 24 hours.

Ripple's XRP has fallen by 8.69%.

Dogecoin, a cryptocurrency that initially started as a joke, reached new record highs of over $0.40 in April after rocketing more than 35%.

Analysts have warned that the Dogecoin "bubble has to burst", and today, it's down 17% to $0.4244.

Why are crypto markets down?

Crypto markets surged over the past year as interest increased among individual investors and well-known companies in the financial world.

Well-known mainstream companies such as PayPal, Mastercard, Facebook and Tesla have backed cryptocurrencies.

Surges came off the back of Coinbase going public in the US – it is the first cryptocurrency exchange to list its shares on a stock exchange.

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.

It's seen as a major milestone and another sign of cryptocurrency becoming mainstream but its shares are now trading below the initial debut price.

The market drops highlight how volatile cryptocurrencies are.

Bitcoin's fall in April was down to a blackout in China's Xinjiang region, which reportedly powers a lot of bitcoin mining, according to CoinMarketCap.

It also followed a decision by Turkey's central bank to ban the use of cryptocurrencies for purchases.

Investors have also been warned to avoid new cryptocurrencies PooCoin and SafeMoon or risk losing their money.

Both of the coins are new and launched on March 8 – but little is know about them and whether they are legitimate.

The latest bizarre launch, PooCoin, has a logo shaped like the poo emoticon, which may appear to be a joke.

SafeMoon technically isn't a cryptocurrency but a decentralised finance (DeFi) token, according to its website.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, told The Sun: "The latest coins to be dropped into the crypto wild west slot machine may appear to be a joke, but could be no laughing matter for traders who dabble in products they don’t fully understand with money they can’t afford to lose."

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

Mastercard will allow payments in cryptocurrencies like Bitcoin later this year.

Meanwhile, Rishi Sunak is setting up a taskforce to explore the option of launching a UK digital currency dubbed "Britcoin".

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