The value of cryptocurrency Bitcoin has fallen to an 18-month low – and experts say more falls are very likely.
Bitcoin, the world’s biggest cryptocurrency , is now worth around $21,975 (£18,000) per coin.
The price of Bitcoin has fallen around 25% in five days, and has been dropping almost constantly since highs of $70,000 in November 2021.
Bitcoin prices are falling for several reasons – and what happens to Bitcoin is normally reflected in smaller cryptocurrencies like Ethereum and Litecoin.
Firstly, yesterday the biggest cryptocurrency exchange Binance, halted all Bitcoin withdrawals for several hours, causing fear among investors .
Secondly, cryptocurrency lender Celsius did exactly the same thing.
Bestinvest financial analyst Adrian Lowery said: “The latest falls overnight were sparked by the same worries that have hit equity markets – a high inflation reading in the US on Friday and fears of steeper interest rate rises globally.
“Major US cryptocurrency lending company Celsius Network – which had been offering annual yields of up to 17% on crypto holdings – froze withdrawals and transfers citing ‘extreme’ market conditions, only to be followed shortly afterwards by crypto trading giant Binance.”
Finally, central bank interest rates are rising , which makes cryptocurrency less attractive.
Cryptocurrency is risky and unregulated.
But one of its main appeals was that it offered the chance of higher returns than investors could get elsewhere.
That is partly because central bank interest rates, which affect investment returns and savings rates, have been low for years.
So crypto, despite its risks, looked attractive.
This was because many investors made lots of cash from something that seemed unconnected to the wider financial system.
But now central banks around the world, including the UK, are putting base rates up to tackle rising inflation .
This means investors get the opportunity to get more money investing in traditional, ‘safer’ investments like stocks and shares, rather than unregulated cryptocurrency.
What is next for Bitcoin prices?
It is notoriously difficult to predict what will happen to Bitcoin prices, like all cryptocurrency.
But many crypto experts think further falls are likely.
Anthony Denier, chief executive of trading platform Webull Financial, told Forbes “we can continue to expect declines in the near term”.
Matt Hougan, of Bitwise Asset Management, told Fortune : “It’s a giant stress test on the system. By and large, most things are passing the test, but not everything.
“This will continue until we hit bedrock, and the excesses in the market are cleansed from the system.”
Last month, the FCA repeated a warning that those who bought digital currencies ‘should be prepared to lose all the money’ they invested.
The watchdog cautioned that crypto products were not protected by financial compensation schemes.
What are the risks of investing in cryptocurrencies?
Cryptocurrency is not regulated in the UK, unlike most other financial products.
The Financial Conduct Authority (FCA) watchdog does monitor crypto, but only to prevent money laundering or funding terrorism.
That means if you put money into anything to do with crypto and the company fails or is defrauded you will probably never see it again.
Many other financial deals are regulated by the FCA, meaning your money is protected up to £85,000 if the company goes bust or your money is stolen somehow.
This is thanks to the Financial Services Compensation Scheme (FSCS), a fund financial firms pay in to.
You can check on the FCA or FSCS websites to see if a company you are interested in is regulated and safe to deal with.