Bitcoin plunged by more than 20% over the weekend – wiping more than $10,000 (£7,395) off the price of a single coin.
The fall puts the cryptocurrency on track for its biggest one-day drop since March, when the COVID-19 pandemic was just beginning to shred global markets.
Bitcoin fell as low as $30,500 on Monday afternoon – its lowest point since 5 January – after reaching a record $42,000 on Friday.
The crash prompted the UK’s Financial Conduct Authority to warn that those who invest in cryptocurrencies should be prepared to lose all of their money.
In a statement, the FCA said crypto investments generally involve very high risks – and some investment companies may understate these dangers while exaggerating potential returns.
British consumers were also told that they would be unlikely to have access to the Financial Ombudsman Service or the Financial Services Compensation Scheme if something goes wrong.
Laith Khalaf, a financial analyst at AJ Bell, said: “The regulator is clearly concerned that the high risks already inherent in cryptoassets are being compounded by scam activity, as well as unregulated firms targeting consumers with marketing material that highlights the rewards, but not the potential downside, of investing in cryptoassets.
“You can see how the rapid price appreciation of Bitcoin, combined with aggressive marketing and low interest rates on cash, creates a perfect storm for consumers looking to get a decent return on their money.
“Unfortunately Bitcoin and other cryptoassets are subject to dramatic price falls as well as rises. Consumers should be on high alert for unsolicited communications linked to Bitcoin or other cryptocurrencies and should consider any marketing material with an extremely critical eye.
“They should also make sure any firm they are dealing with is regulated, or at least has temporary permissions from the regulator.”
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: ”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.
“Bitcoin’s price is being driven primarily by future price speculation rather than an underlying use case. The Financial Conduct Authority clearly believes the crypto Wild West could be running out of control, and is warning that consumers risk losing all their money if they succumb to promises of fast and high returns.”
Source: Read Full Article