Leading investment banks warned of an impending bubble as the price of Bitcoin more than doubled from December to a record $42,000 on Friday
Bitcoin plunged more than 19pc yesterday ending and part-reversing what had been a sustained rally in the cryptocurrency – a digital ‘coin’ that can be used as a means of exchange but is not backed by any monetary authority.
The growing popularity of investing in cryptocurrencies prompted the UK’s Financial Conduct Authority to warn consumers yesterday that the asset class is “very high risk”.
Investors “should be prepared to lose all their money” it said.
The fall yesterday was big but only took bitcoin back to a one-week low. Interest in bitcoin has been soaring as institutional investors began buying heavily, viewing it as a hedge against devaluation of established currencies as well as out of a fear of missing out on what have been huge paper gains.
The cryptocurrency more than doubled in price from early December to a record $42,000 on Friday, leading some investment banks to warn of an impending bubble. While seen by supporters as a store of value in an uncertain world – because there is a finite number of coins – the bitcoin market is extremely volatile.
Bitcoin slumped to $30,699 yesterday. If sustained, the one-day drop would be the biggest since Covid-19 caused chaos in financial markets in March.
Second-biggest cryptocurrency ethereum, which often moves in tandem with bitcoin, fell as much as 23pc to a one-week low of $985.
Bank of America said last week the cryptocurrency surge “blows the doors off” prior bubbles like the dotcom boom, China in the 2000s and gold in the 1970s.
JPMorgan strategists, however, said that bitcoin has emerged as a rival to gold and could trade as high as $146,000 if it becomes established as a safe-haven asset.
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