Bitcoin and Ethereum prices crash after China signals crypto crackdown

THE value of Bitcoin and Ethereum have crashed after China announced a further crackdown on cryptocurrencies.

The country has banned financial institutions from offering crypto relatedtransactions, and warned investors against speculative trading in them.

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The price of Bitcoin is currently sitting at $40,635 (£28,686), down from its all-time high of $64,621 on April 14 (£45,616).

At the time of writing, it's down by 10% over the past 24 hours, according to CoinMarketCap.

It comes after the cryptocurrency plunged last week as Elon Musk said Tesla would no longer accept Bitcoin payments to buy cars.

The founder cited the harmful effects to the environment that comes with mining the cryptocurrency, which is a hugely energy-intensive process.

5 risks of crypto investments

THE Financial Conduct Authority (FCA) has warned people about the risks of investing in cryptocurrencies.

  • Consumer protection: Some investments advertising high returns based on cryptoassets may not be subject to regulation beyond anti-money laundering requirements. 
  • Price volatility: Significant price volatility in cryptoassets, combined with the inherent difficulties of valuing cryptoassets reliably, places consumers at a high risk of losses.
  • Product complexity: The complexity of some products and services relating to cryptoassets can make it hard for consumers to understand the risks. There is no guarantee that cryptoassets can be converted back into cash. Converting a cryptoasset back to cash depends on demand and supply existing in the market. 
  • Charges and fees: Consumers should consider the impact of fees and charges on their investment which may be more than those for regulated investment products.  
  • Marketing materials: Firms may overstate the returns of products or understate the risks involved.

Meanwhile, the value of Ethereum has dived from $4,260 (£3,007) on May 12 to $2,988 (£2,109) today. It's down by 15% over 24 hours.

Buying cryptocurrencies, like any investment, is a very risky business and making money is never guaranteed.

You should make sure you know the risks of investing in cryptocurrencies and that you can afford to lose any money you put in.

Cryptocurrencies are highly volatile, so the value of your investments can go down as well as up in the blink of an eye.

China has previously banned crypto exchanges and initial coin offerings but it hasn't stopped individuals from holding cryptocurrencies.

Under the latest ban, financial institutions, including banks and online payments channels, can't offer any service involving cryptocurrency.

This includes registration, trading, clearing and settlement.

The statement was put out by three state-backed industry associations – the National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China.

It said: "Recently, cryptocurrency prices have skyrocketed and plummeted, and speculative trading of cryptocurrency has rebounded, seriously infringing on the safety of people's property and disrupting the normal economic and financial order."

It warned consumers against wild speculation, adding that the "losses caused by investment transactions are borne by the consumers themselves", since Chinese law offers no protection to them.

It also highlighted the risks of cryptocurrency trading, saying virtual currencies "are not supported by real value".

Laith Khalaf, financial analyst at AJ Bell, said: "The price of Bitcoin has tumbled by a third over the last month, which highlights the extreme risk inherent in cryptocurrency.

"The tide has turned on Bitcoin because environmental concerns and regulatory risks have materialised, which have raised doubt over the long term adoption of cryptocurrency by businesses and consumers.

"[The warning from China] is a manifestation of the regulatory risk surrounding cryptocurrencies.

"Central banks aren’t simply going to roll over and let systemic risks build up on the back of Bitcoin trading."

The price of Bitcoin dropped last month as Turkey banned cryptocurrency payments.

Its value also plummeted when the coronavirus crisis first hit last month.

People considering investing in Bitcoin or shares and stocks have been warned over "risky" tips being shared on TikTok.

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