Bitcoin has lost ground again after a short relief rally, as inflation fears linger and prospective competition from central bank digital currencies comes into sharp focus. Bitcoin fell by 1.6% over 24 hours, dropping back below $32,000 dollars, with the fresh crypto sell-off also pushing down the price of Ethereum by 2%, Dogecoin by 3% and Cardano by 1.7%.
By Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown
The edge away from crypto wallets comes as speculation surges about the impact of central banks around the world launching rival digital currencies.
The chair of the Federal Reserve Jerome Powell said the introduction of CBDCs would undermine the case for crypto currencies and stable coins. His comments in a special US congress appearance came as the European Central Bank revealed it is forging ahead with an investigation into the benefits of a digital euro which would complement cash.
This week the Bank of England also stressed the need for regulators to keep up with digital coin developments, and ensure the public have the confidence and trust to use digital money. But in contrast to the Fed, it flagged stable coins as systemically important, indicating that these are likely to be a central feature in the monetary system going forward.
The revolution in the global payments system is firmly on central banks’ radar given how critical its smooth running is to financial stability.
In its report today the financial conduct authority highlighted that 2.3 million people in the UK hold crypto assets, warning that they risk losing all their money due to their highly volatile nature, particularly as these are assets the watchdog does not regulate. With the number of people piling into crypto rising by a fifth over the year, and around 14% of people borrowing money to speculate, regulators are clearly concerned that some of the most financially vulnerable are gambling with money they can’t afford to lose.
The chatter on social media platforms and potential for fraud and scams is rising, with so many people desperate to emulate tales of getting rich quick.
The financial watchdog is currently focused on trying to establish fresh strategies to encourage fewer people to indulge in risky investments. It is clear greater regulation of the crypto world is on its way.