Bitcoin has been through a wild ride this week after spectacularly crashing – but it has now bounced back above $US40,000 ($A51,000).
The price had fallen by nearly 30 per cent from the day’s early highs at one point.
Bitcoin’s plunge came amid a broader sell-off of cryptocurrencies that saw the overall market lose about 20 per cent of its value, or over $425 billion, in 24 hours, according to data from coinmarketcap.com.
But Antony Portno, founder of Traders of Crypto, said it would be easy to become distracted by the recent mini crash, yet nearly all coins are still much more valuable than they were a year ago.
“Crypto is a new market, it is also unregulated and traded 24/7, the market is influenced by speculation, margin trading, shorting and manipulation by whales or groups of people working together. All of these aspects lead to a greater volatility in the market,” he said.
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‘Hostility from countries and institutions’
Compared to the stock market, cryptocurrency has low liquidity so it takes less money to move the price, with 10 to 20 per cent daily movements not out of the ordinary, Mr Portno added. Blockchain, the technology that underpins cryptocurrency, “allows people to have power over banks, corporations and governments and is causing mass scepticism and hostility from countries and institutions, because it is giving people power they never once had,” he claimed.
“Whilst there are many meme coins and pointless copycat coins, there are some outstanding projects that will change the world and create a greener, more efficient and fairer society,” he said.
“With this in mind, I would expect to see cryptocurrencies make a strong return following this troubling mini-crash. However, there will be many people out there hoping that this mini-crash leads to a Wall Street-style crash for cryptocurrencies. They might be disappointed.”
Adam Morris, co-founder of Crypto Head, agreed that joke coins are muddying the market, including ones like shiba inu which was created to rival the parody currency dogecoin.
“Shiba inu will never reach $US1 ($A1.29) – for it to reach $US1 ($A1.29) the market cap would be $US394 trillion ($A507 trillion). Coins like shiba inu are sprouting up much more frequently in recent months and people are getting involved to get huge returns on their investment,” he said.
“Projects like this should only be considered depending on your risk tolerance. If you are investing to get 100x gains you have to realise there is a high chance you will lose your initial investment.
“If you don’t want to spend lots of time keeping up with these types of projects it would be better to make longer-term investments on cryptocurrencies that have history and purpose in the industry.”
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US crackdown
Meanwhile, US regulators have announced they will require larger cryptocurrency transfers to be reported to its Internal Revenue Service, while US central bank, the Federal Reserve, has flagged a closer look at digital coins.
Federal Reserve chairman Jerome Powell said he wants the central bank to play “a leading role” in the development of international standards, adding cryptocurrency would not replace cash or other digital financial options, such as deposits at commercial banks.
Crypto risks
While the UK Financial Conduct Authority has warned people should be prepared to risk losing all their money if investing in cryptocurrency, scams are also on the rise.
Mr Morris advised how to spot the scams and keep your money safe.
“People should always be wary of platforms offering huge returns. If it sounds too good to be true, it most likely is. Never send your money or cryptocurrency to a platform you don’t completely trust. If you do some quick research you should be able to gauge online how reputable a company is,” he said.
“Even if you see big names like Elon Musk supposedly endorsing the investment, do not take this at face value. Scammers are so successful because they use recognisable and trusted names to dupe people into believing it’s a sound investment when really these names have no association to it at all.