Bitcoin slips as Bank of England warns of dangers of crypto

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The Bank of England’s December Financial Stability Report said crypto-asset markets and activities continue to grow and develop rapidly. Photo: Getty

Major cryptocurrencies were down on Tuesday morning as the Bank of England (BoE) warned that the crypto’s rapid growth would create stability risks going forward.

But dogecoin (DOGE-USD) was on the rise after Tesla (TSLA) CEO Elon Musk said the electric carmaker would accept dogecoin for its goods on a trial basis.

The BoE’s December Financial Stability Report indicates that crypto-asset markets and activities continue to grow and develop rapidly.

He said crypto-assets currently pose limited direct risks to UK financial stability, but will present “a number of financial stability risks” if they continue to grow at their current rapid pace. and as they become more interconnected with the wider financial system.

He called for strengthened regulatory and enforcement frameworks, both nationally and globally, to manage risk, encourage sustainable innovation and maintain broader trust and integrity in the financial system.

Bitcoin (BTC-USD) fell 3.5% to trade at $ 47,371 (£ 35,834). Ethereum (ETH-USD), the world’s second largest crypto by market cap, was down 5.2% and trading at $ 3,814.

Bitcoin was down on Tuesday morning. Chart: Yahoo Finance France

Bitcoin is trading below a key level of $ 50,000 and is down about 30% from its all-time high of around $ 69,000, reached in November.

“It appears the bears have taken over the crypto markets as bitcoin, the king of cryptocurrencies, fails to break through the crucial $ 50,000 level and fell 8.4% on Monday to 45. $ 773, “said Naeem Aslam, chief market analyst at AvaTrade.

The fall in bitcoin prices on Monday pushed the digital coin below its 200-day average “which is negative news for crypto enthusiasts,” he said.

Likewise, the Bloomberg Galaxy Crypto Index fell around 7.40%, showing that sentiment in the broader crypto markets has taken a hit.

“The recent evolution of cryptocurrency prices challenges the argument that the blockchain space has finally come of age due to which extreme market volatility will likely decrease in the future,” he said.

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He added that some investors view digital coins as a hedge against inflation and that rising consumer prices may have, to some extent, provided some support to the crypto markets last week. However, the crypto markets were unable to keep the rally going.

Read more: Live Crypto Prices

“If bitcoin is a hedge against inflation, as many seem to think, then it doesn’t respond very well to data,” said Mati Greenspan, founder of Quantum Economics.

Some analysts had predicted that bitcoin would hit new all-time highs before the end of the year. Some even said it could go up to $ 100,000.

These hopes “have for the most part been dashed, although there may still be some bullish analysts. At this point, it seems to me that the possibility of more short-term pain is a bit more prevalent,” said Greenspan. .

Farah Mourad, senior market analyst at XTB MENA, said the large drop in cryptos followed investors shying away from risky assets as the US Federal Reserve is expected to step up its quantitative easing.

She pointed out that capital flows to cryptos were weaker for the second week, falling below $ 100 million.

Meanwhile, dogecoin rose 17% to trade at $ 0.193 after Musk said some of Tesla’s products can be purchased with the token itself.

“Musk has once again organized a rally for Dogecoin by making it official that you can use Dogecoin to buy it [Tesla] commodity, ”Aslam said, adding,“ Traders are very likely to speculate on its next move and now the chatter of buying Tesla with bitcoin is going to increase. “

Tesla sells goods such as clothing, belt buckles and mini models of its cars.

Musk had announced that Tesla would accept bitcoin as a form of payment, only to change course shortly thereafter, citing concerns about the climate impact of bitcoin mining – which is substantial.

Since then, there have been some developments to make mining greener.

“We already know that Musk has relaxed his stance on bitcoin as most of the energy comes from renewable sources. We think the news is actually very powerful for the crypto industry and Musk really is Jesus of the world. ‘crypto industry because it has tremendous power to move cryptocurrencies through its tweets, ”Aslam said.

Read more: Tesla Founder’s Best Tweets in 2021 That Shook Markets & Crypto

But many criticize this power.

“If the ‘Musk effect’ is to wane” and if cryptocurrency is to be adopted by the general public, educating people about the cryptocurrency markets will be essential, said Sam Kopelman, UK director of Luno, at Yahoo Finance UK.

“As more and more people understand the fundamentals of crypto, they will begin to build a solid conviction that will enable them to resist fluctuating sentiment changes. It is here that the native crypto organizations can provide customers with simple, transparent and easy-to-understand information. “

Watch: What are the risks of investing in cryptocurrencies?

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