With market volatility wiping out close to $10,000 from the value of Bitcoin in less than 24 hours and stripping Tesla’s chief, Elon Musk, of the richest man’s toga, more caution has been raised as investors in the cryptocurrency market have been warned of losing their investments.
From $54,911 peak on Monday night, the price of Bitcoin, the most popular of the cryptocurrencies, declined to as low as $45,393 on Tuesday down by more than 10 per cent, setting off panic among some buyers.
The Central Bank of Nigeria was criticised recently for taking drastic steps against the rising trend of cryptos in the country. It set off a wave of controversy after it directed financial institutions in the country to close accounts of individuals trading on cryptocurrency.
According to the apex bank, the move was to protect Nigerians’ funds and stop cryptocurrency from being used as a means of illicit transactions.
The CBN had stated that due to the lack of transparency, “cryptocurrencies have become well-suited for conducting many illegal activities, including money laundering, terrorism financing, purchase of small arms and light weapons, as well as tax evasion.”
CBN’s stance was given more credence after the United States Treasury Secretary, Janet Yellen, described bitcoin as an “extremely inefficient” way to conduct monetary transactions.
Yellen, in an interview with CNBC, said there were unanswered questions about legitimacy and stability.
Her words, “I don’t think that bitcoin is widely used as a transaction mechanism. To the extent it is used, I fear it’s often for illicit finance. It’s an extremely inefficient way of conducting transactions, and the amount of energy that’s consumed in processing those transactions is staggering.
“It is a highly speculative asset and I think people should be aware it can be extremely volatile. I worry about potential losses that investors can suffer.”
The Chief Information Officer of Paris-based quantitative trading firm, ExoAlpha, David Lifchitz, had predicted the slump.
According to him, $50,000 looks like the first stop for a mild pullback, but a second leg down could take it down to $40,000, while the $30,000 zone looks like the ultimate bottom, should things turn ugly in the short term.
Omkar Godbole of CoinDesk, however, believes that there were macro-economic forces that might explain the recent pullback in the value of Bitcoin.
He noted that U.S. inflation-adjusted bond yields were rising, with the real yield turning positive for the first time since June 2020.
According to a new survey, 41 per cent of U.S. investors think that stocks and crypto are equally risky.
