Crypto retreats as bitcoin and ethereum lead mild sell-off
The cryptocurrency market saw a minor sell-off on Friday morning, with bitcoin (BTC-USD) and ethereum (ETH-USD), the world’s first and second largest coins, down around 4%.
Bitcoin, which is currently trading at $37,866 (£27,259), reached a level of $41,330 on 15 June, a key $41,250 resistance area, however, it has been ever decreasing since.
It came as 'Big Short' investor Michael Burry warned that the "mother of all crashes" was pending, predicting a downturn in crypto and meme stocks.
"All hype/speculation is doing is drawing in retail before the mother of all crashes," the investor tweeted. "When crypto falls from trillions, or meme stocks fall from tens of billions, #MainStreet losses will approach the size of countries."
He added that people's fear of missing out (FOMO) has propelled asset prices to unsustainable levels.
This week the cryptocurrency market has been knocked by an announcement from the US Federal Reserve that it could raise interest rates by late 2023. Assets deemed to be risky, like certain stocks and crypto, have also been weighed down by lingering concerns that the Fed may wind down its bond-buying programme sooner than expected.
On Thursday, the World Bank also rejected a request from El Salvador to help with the implementation of bitcoin as a legal tender.
The bank said it could not assist El Salvador’s plans due to the environmental impact of bitcoin mining, and transparency drawbacks.
It came as the UK’s Financial Conduct Authority (FCA) reiterated its warning that people “should be prepared to lose all their money” if they invest cryptocurrencies.
The regulator estimated that 2.3 million adults in Britain now hold cryptoassets, up from 1.9 million last year, with increasing numbers of people seeing them as either a complement or alternative to mainstream investments.
Enthusiasm for cryptoassets is also growing, with over half of crypto users saying they have had a positive experience so far and are likely to buy more, rising from 41% to 53%, the FCA said. Fewer people also regret having bought cryptocurrencies, down from 15% to 11%.
Sheldon Mills, the FCA’s executive director for consumers and competition, said: "The market has continued to grow, and some investors have benefitted as prices have risen.
Watch: What is bitcoin?
"However it is important for customers to understand that because these products are largely unregulated that if something goes wrong they are unlikely to have access to the FSCS or the Financial Ombudsman Service.
Cryptos have been boosted by institutional support recently. Several organisations, including MicroStrategy (MSTR), have invested billions of dollars into cryptocurrencies and traditional financial firms like PayPal (PYPL) and Goldman Sachs (GS) started to handle the asset on behalf of clients.
“While things may seem quiet to the untrained, activity is still strong behind the scenes,” Paolo Ardoino, CTO at Bitfinex, said. “Options markets are buzzing as institutions test strategies.”
He added: “Bitcoin has become a staple in some of the most diverse portfolios around the world. Long term retail investors are riding the wave. Bitcoin's builders continue to build. The first bitcoin upgrade in four years has been approved and will go into effect in November. Developers are working away in anticipation of the upgrade. The community continues to improve financial networks worldwide."
However, according to a Bank of America survey, 81% of fund managers say bitcoin is still a bubble.
Watch: What are the risks of investing in cryptocurrency?