Will crypto recover? Why the Bitcoin
price is crashing and what experts say will happen to the market next.Bitcoin
has now lost almost a third of its value in the last week, and is worth less than a third of the record high is reached back in November.
Bitcoin’s price slipped below $21,00 (£17,000) in the early hours of Tuesday morning, as the cryptocurrency market continues to struggle in the wake of lending site Celsius freezing all withdrawals and transfers on its platform.
The world’s largest cryptocurrency did recover slightly, climbing back to around $22,600 (£18,600), but is still down almost 10 per cent over the past 24 hours.Binance
temporarily halted withdrawals of Bitcoin on Monday as its price slid.
Bitcoin has now lost almost a third of its value in the past week, and is worth less than a third of the record high it reached back in November.
Other coins have lost similar value after the Celsius incident. Ethereum is trading at $1,230 (£1,000), down from over $1,840 (£1,500) a week ago.
Some smaller coins such as Cardano, Solana and Polkadot have made small recoveries – they are all up at least 10 per cent in the past 24 hours – but are still well down on last week’s prices.
Here’s what you need to know about the crash, and what experts predict could happen next.
Why did Bitcoin crash?
Celsius is a platform that allows people who hold cryptocurrency assets to lend out their tokens in return for high rates of fixed financial returns on their deposits. It currently has around $8bn (£7bn) lent out to its clients.
On Monday, the platform said that it would be "pausing all withdrawals, swap, and transfers between accounts" so that it could be in "a better position to honour, over time, its withdrawal obligations".
It said it was making the move to "benefit our entire community in order to stabilise liquidity and operations while we take steps to preserve and protect assets".
However, the decision heightened concerns about Celsius’s liquidity, and investors have been fleeing the platform in recent weeks. The value of Celsius’s assets has more than halved since October, when it was handling $26bn (£21bn) of client funds.
It comes after the collapse of Terra’s Luna token last month, which also had a significant knock-on effect on the crypto industry.
Freezing transactions has also accelerated an ongoing sell-off in cryptocurrencies.
The general mood around crypto has cooled this year. Investors appear to be moving away from cryptocurrency and towards less risky investments in the face of global inflation.
More from Cryptocurrency.
Will Bitcoin recover?
Rich Blake, a financial consultant at Uphold, told The Independent Bitcoin could be approaching a breakdown.
"Crypto hobbles into the week somewhat beholden to the whims of the stock markets, clearly on pins and needles over May inflation numbers – the US Consumer Price Index (CPI) report dropped on Friday. Its bottom line; not what anybody wanted to hear," he said.
"Economists expected the CPI to rise 8.3 per cent year over year, but the headline inflation level actually came in at 8.6 per cent. Wall Street was groping for a sign that inflation may have peaked.
"Minutes before Friday’s CPI report, Bitcoin was battling to stay above $30,000. Hours earlier, it was under $29,000 and appeared to be on the verge of a breakdown. A looming hazard of a ‘crypto winter’, now hangs in the balance."
The CoinDCX research team told Business Today : "Going into 2023, we expect major central banks to continue their trajectory of quantitative tightening and policy rate hikes – effectively limiting any significant upside unless we see more convincing trends in economic recovery."
However, other experts remain bullish over crypto’s future.
Danial, founder of Invest Diva and author of Cryptocurrency Investing For Dummies , said: "What I expect from Bitcoin is volatility short-term and growth long-term."
Big four accounting firm PWC published its fourth annual global crypto hedge fund report last week.
The results showed that "while the overall crypto market was quite bearish, managers remained extremely bullish on BTC", with 42 per cent predicting Bitcoin to be between $75-100,000 (£62,000-£83,000) by the end of 2022, and a further 35 per cent predicting a price over $50,000 (£41,000).
How risky is cryptocurrency?
People invest at their own risk and cryptocurrencies are not regulated by British financial authorities.
All crypto investments are risky, but meme coins like Shiba Inu are particularly volatile, and you should be prepared to lose everything you invest.
The Financial Conduct Authority (FCA) warned in January: "Investing in cryptoassets, or investments and lending linked to them, generally involves taking very high risks with investors’ money.
"If consumers invest in these types of product, they should be prepared to lose all their money."
Susannah Streeter, senior cryptocurrency investment and BNB markets analyst, Hargreaves Lansdown previously explained the risks to i .
She said: "On top of being extremely volatile, most cryptocurrencies are unregulated, which not only adds another layer of uncertainty but also means that investors have little or no protection against fraud."