Bitcoin price edges up after yesterday's biggest one-day drop in two months

THE price of bitcoin has edged higher on Monday after a major drop over the weekend.

Bitcoin had its biggest one-day drop in two months on Sunday and it's the latest wild movement for the cryptocurrency.

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Last week Bitcoin hit record highs, surging above $64,000 for the first time ever.

Bitcoin tumbled as much as 15% on Sunday dropping back under $54,000 – that was its biggest drop in a single day since February according to Bloomberg.

On Monday bitcoin was trading slightly higher at $56,824.

The price of bitcoin and other cryptocurrencies can rise and fall sharply, and you can be left with less money than you put in.

What is Bitcoin?

BITCOIN got you baffled? Here’s what you need to know:

  • Bitcoin is a virtual currency
  • It's traded between people without the help of a bank
  • Every transaction is recorded in a public ledger, or "blockchain"
  • Bitcoin is created by mining
  • Mining involves solving difficult maths problems using computer processors
  • Bitcoin can be traded anonymously, which can make it a popular way of funding illegal activities
  • The value of Bitcoin fluctuates wildly
  • Bitcoin is one of many different cryptocurrencies, but by far the most popular

Remember, you should never invest money that you can't afford to lose.

There have also been warnings around scams related to cryptocurrencies,

Bitcoin's surge last week was helped by Coinbase going public – it's the first cryptocurrency exchange to trade its shares on a stock exchange.

Bitcoin hit previous highs in February, when Tesla announced it would soon be allowing customers to make purchases using Bitcoin.

That announcement came with the revelation that the Elon Musk controlled firm had also invested $1.5 billion in Bitcoin itself.

Bitcoin broke through the $20,000 price mark for the first time in December as interest in bitcoin becomes more mainstream.

But the price previously plummeted when the coronavirus crisis first hit, sinking to £3,300 last March.

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.

The latest plunge over the weekend was down to a blackout in China's Xinjiang region, which reportedly powers a lot of bitcoin mining according to CoinMarketCap.

It also follows a decision on Friday by Turkey's central bank to ban the use of cryptocurrencies for purchases.

Meanwhile, the Bank of England today revealed that it is exploring its own digital currency.

A Central Bank Digital Currency (CBDC) would exist alongside physical cash and existing bank deposits, rather than replacing them, the central bank said.

A CBDC is different from cryptocurrencies.

Cryptocurrencies like bitcoin are not issued or controlled by any single organisation and are created by a computer process called "mining".

A "digital pound" would be issued by the Bank of England in the same way as physical coins and notes.

The Bank of England is working with the Treasury to explore a potential UK CBDC and will work with the finance industry to understand the benefits, risks and practicalities.

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