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What is Bitcoin and why is the price falling?


BITCOIN’s price has crashed recently after hitting record highs.

The cryptocurrency rose quickly in value at the start of the year, but it has since fallen following a crackdown in China and announcements made by Tesla boss Elon Musk. 

Read our Bitcoin live blog for the latest Bitcoin updates…

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Bitcoin is a digital currency that was launched in 2009[/caption]

Investing in any cryptocurrency is highly risky and you shouldn’t never put in money that you can’t afford to lose.

In a warning in January, the FCA said Brits risk losing their savings if the price of Bitcoin plummets.

It is important to never invest in something you don’t understand.

What is Bitcoin and why is it falling?

Bitcoin is a virtual currency that was created in 2009 by an unknown computer whizz using the alias Satoshi Nakamoto.

Unlike physical currencies such as pounds, dollars or euros, which come in physical notes and coins, Bitcoin isn’t printed or minted.

Instead, Bitcoin tokens are a digital-only form of payment and are created by a computer code.

The value of Bitcoin is determined by how much people are willing to exchange it for and it’s price has fluctuated wildly since it was introduced.

It’s currently valued at around $34,325.68, up 2.41% since yesterday but down 9.13% since last week.

Last year, the currency was around the $23,000 mark – but in April this year it reached record highs of above $62,000 at the beginning of April.

Since then, it has seen regular slumps – eventually dropping to its current price.

Some of the biggest falls came when Elon Musk withdrew his support and Beijing announced its ban.

The Tesla boss had previously said his car firm would accept Bitcoin as payment for its cars.

However, he then withdraw support, saying his electric car company would not accept the digital currency due to environmental concerns over how it is mined.

China then banned banks from providing services related to cryptocurrency transactions, and warned investors against speculative crypto trading.

Bitcoin has suffered a series of other blows in recent months, including Turkey’s announcement that it would ban crypto payments.

This goes to show that its volatile nature means you should be aware of all the risks involved.

Although it’s possible the currency might bounce back –  is not a guaranteed way to make money.

Will the markets recover? Experts say the cryptocurrency is unpredictable.

How does Bitcoin work?

To process Bitcoin transactions, a procedure called “mining” must take place, which involves a computer solving a difficult mathematical problem with a 64-digit solution.

For each problem solved, one block of Bitcoin is processed. In addition, the miner is rewarded with new Bitcoin.

To compensate for the growing power of computer chips, the difficulty of the puzzles is adjusted to ensure a steady stream of new Bitcoins are produced each day.

There are currently about 18.7millon Bitcoin tokens in circulation.

To receive a Bitcoin, a user must have a Bitcoin address – a string of 27-34 letters and numbers – which acts as a kind of virtual postbox.

These addresses are in turn stored in Bitcoin wallets, which are used to manage savings.

The bulk of Bitcoin “mining” is done in China, where energy costs are cheaper than in places like the UK or US.

5 risks of crypto investments

THE Financial Conduct Authority (FCA) which creates the rules for the banking industry 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.

Is Bitcoin safe?

Anyone thinking of investing in Bitcoin or any other cryptocurrency should be very careful.

Their values are incredibly unpredictable, with the ability to plummet as quickly as they shoot up.

Like with all cryptocurrencies, this means if you choose to invest, you can lose your money if the value drops.

For example, on January 9, 2018, Bitcoin and other major currencies crashed by £120billion after major monitoring platform CoinmarketCap decided to leave out the trading prices from South Korea.

Cryptocurrencies themselves are only regulated in the UK for anti-money laundering and counter-terrorist financing.

If you decide to invest, your money won’t be covered by the Financial Services Compensation Scheme (FSCS) which protects up to £85,000 of your savings if a firm goes bust.

You also won’t be able to go to the Financial Ombudsman Service if something goes wrong. 

Firms offering cryptoassets must now be registered with the Financial Conduct Authority (FCA) and anyone who does invest in cryptocurrencies should check before investing.

In October last year, the FCA banned Brits from buying a “harmful” type of cryptocurrency-related investment in the UK known as an Exchange Traded Note.

Exchange Traded Notes are an investment product that tracks the price of cryptocurrencies in the same way that others track the price of gold or other investments.

Investors in these products make or lose money based on a cryptocurrency’s current or future price.

But people can still continue to buy cryptocurrencies directly and invest them or use them as currency.

How do I buy Bitcoin and how can I spend it?

Several marketplaces called “Bitcoin exchanges” allow people to buy or sell Bitcoins using different currencies.

People can also send Bitcoins to each other using mobile apps or their computers in the same way people send cash digitally.

You are also able to purchase Bitcoin through an online exchange or Bitcoin ATM.

If you have invested in Bitcoin, you can set up a virtual wallet to store, keep track and spend your digital money –  but very few businesses accept Bitcoin as a form of payment.

You can use the Where To Spend Bitcoin UK website to find merchants that accept the currency.

How the value of Bitcoin has changed in recent years

THE value of Bitcoin has fluctuated since it was launched in 2009.

  • 2009-2011: One Bitcoin was equal to about one US dollar
  • 2013: Bitcoin rises upward to $1,242
  • 2014: Bitcoin falls to $530
  • 2017: Bitcoin rose to $13,800 by the end of the year
  • 2018: Price dropped to around $6,000 before halving again to around $3,000
  • 2020: Started at $5,000 before ending the year around $28,000
  • 2021 January: Bitcoin around $36,000
  • February: Bitcoin around $50,000
  • March: Bitcoin around $60,000
  • April: Bitcoin soaring above $62,000
  • May: Bitcoin tumbles to $39,790
  • June: Bitcoin is at the low value of $32,800


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