The price of Ethereum, the second-largest digital coin, has plummeted 20 per cent in the past 24 hours during a major crash of the cryptocurrency market.
Cryptocurrencies have sharply declined in value in recent few days amid downturns throughout financial markets with highly-valued US tech stocks including Amazon down sharply.
Having traded as high as £1984.76 yesterday, Ethereum’s price has now hit £1425.60 – losing more than 20 per cent of its value in just a day.
Jeff Bezos’s Amazon has lost 30 per cent of its value in a month – from £2468.75 on April 11, to £1725.19 today.
The crash is affecting many digital coins with Bitcoin, the most-famous cryptocurrency, losing 11.24% of its value to now sell for £21,910.97 – after hitting an all-time high of £56,330 just six months ago.
Unlike crashes of recent years, this latest plunge seems to be linked to a slowdown in traditional markets.
Ether, another large cryptocurrency, tumbled nearly 15 per cent on Thursday to £1391.65, its lowest since June 2021
Nearly all of the value of Terra (LUNA), a stablecoin, was wiped out overnight with suicide hotlines pinned to the currency’s Reddit page as a result of the 98 per cent drop.
LUNA was once in the top-10 values for cryptocurrencies just months ago.
‘The Terra incident is causing an industry-based panic, as Terra is the world’s third-biggest stable coin,’ said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.
But TerraUSD ‘couldn’t hold its promise to maintain a stable value in terms of U.S. dollars.’
Stablecoins are digital tokens pegged to the value of traditional assets, such as the U.S. dollar. They are popular in times of turmoil in crypto markets and are often used by traders to move funds around and speculate on other cryptocurrencies.
The NASDAQ experienced its sharpest one-day fall since June 2020 earlier this week and the crypto hit implies an increasing integration between crypto and traditional markets.
The crypto downturn has wiped more than $1.5trillion of value from the markets but investors will still be hoping that prices will be able to rally as they have done in the past.
The amount of business done by crypto exchanges, which hold the ‘blockchain’ ledgers that record transactions, is also dropping heavily.
‘The crypto sell-off has been driven by the daunting macro backdrop of rising inflation and interest rates that has sent shockwaves through the tech sector, dragging cryptos down with it, confirming that Bitcoin and others serve little purpose as a hedge against inflation,’ said Victoria Scholar, head of investments at Interactive Investors.
Financial analysts predict a ‘crypto winter’ for the likes of Bitcoin and Ethereum.
A perfect storm of circumstances, not least a looming fall in tech stocks that many fear will turn into a historic crash, has led to predictions that we are about to see another repetition of the fate of the dotcom boom.
And cryptocurrencies are slap bang in the firing line — along with a spin-off fad for digital art, known as NFTs, or non-fungible tokens.
Despite previous rallies, analysts fear that the ‘party may be over’ for crypto.
Rising interest rates around the world are a major part of crypto’s problem. The pandemic was a golden time for cryptocurrencies, as central banks pushed interest rates down to record levels to boost economies.
This low propelled investors to look for assets that provided a healthy rate of return and many inevitably targeted Bitcoin and its rivals, dubbed altcoin.
Now that interest rates are rising, investors can make better returns buying global government bonds — which are less risky than crypto.
The downturn has led to Coinbase, an online trading platform, issuing a stark warning to customers: Your crypto is at risk if the exchange goes bankrupt.
According to Coinbase’s official website, the company has more than 98 million verified users. It is the largest cryptocurrency exchange platform in the United States.
Coinbase’s CEO Brian Armstrong attempted to calm shareholders in a series of tweets one of which read: ‘Your funds are safe at Coinbase, just as they’ve always been.’
Despite Armstrong’s claims, in an SEC filing the company referred to customers as ‘unsecured creditors’ in the event that Coinbase went belly-up.
This means that customers’ crypto assets would be considered the property of Coinbase by bankruptcy administrators.
The SEC filing, Staff Accounting Bulleting 121, requires crypto platforms to include customer’s crypto holdings as assets and liabilities on balance sheets.
Armstrong wrote on Twitter that the company is at ‘no risk of bankruptcy’ despite the filing, which he said was made so that company would be in compliance with SEC regulations.
WHAT ARE CRYPTOCURRENCIES?
A cryptocurrency is a digital currency that can be used for transactions online.
It is the internet’s version of money – unique pieces of digital property that can be transferred from one person to another.
All crytocurrencies use ‘blockchain’ and one can only be made and shared using specific agreed-upon rules. For each cryptocurrency the rules are slightly different.
Bitcoins are lines of computer code that are digitally signed each time they travel from one owner to the next. Physical coins used as an illustration
People can buy bitcoins through exchanges such as Coinbase and Bitfinex.
Bitcoin was the first cryptocurrency, created in 2009.
Other currencies such as Litecoin and Dogecoin do the same thing but have slightly different levels of inflation and rules surrounding transactions.
Currently around 270,000 transactions are taking place every 24 hours.
These currencies don’t exist as physical or digital objects. They are just a collective agreement with other people on the network that your currency was legitimately ‘mined’.
Blockchain is the record of changes in ownership of in a currency which is broadcast through the network and maintained by computers around the world.
The network works by harnessing individuals’ greed for the collective good.
A network of tech-savvy users called miners keep the system honest by pouring their computing power into a blockchain, a global running tally of every bitcoin transaction.
As long as miners keep the blockchain secure, counterfeiting shouldn’t be an issue.
However, because cryptocurrencies allow people to trade money without a third party getting involved, they have become popular with libertarians as well as technophiles, speculators — and criminals.
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