Tuesday, November 20, 2018

Bitcoin Falls Below $5,000 for First Time Since 2017

The value of Bitcoin slipped Monday below $5,000 (EUR 4,366 or about Rs. 3.57 lakhs) for the first time since October 2017 as a broad selloff gathered steam on the opaque cryptocurrency market.

Data compiled by the Coinbase digital exchange showed the world's most popular virtual currency losing 12.5 % of its value from Friday evening to stand at $4,914.21 (roughly Rs. 3.51 lakhs) by 1930 GMT Monday.

The rout began on Wednesday and has also affected widely-traded other cryptocurrencies such as Ethereum and Ripple.

Bitcoin opened trading on wednesday at $6,326 (around Rs. 4.51 lakhs) and has since seen its market capitalisation fall to less than $90 million (approximately Rs. 642 crores) for the first time in over a year.

The still-nascent sector is not completely transparent and analysts have struggled to understand what precisely prompted the latest drop.

At least some of it has been attributed to a battle for control of a smaller crypto operator called bitcoin cash.

That currency has split in two - a process traders describe as a "hard fork" - and who owns it at the moment is not entirely clear.

Bitcoin cash was down around 20 % on the day.

The confusion has highlighted what analysts have been warning for some years: crypto trading is too unregulated and risky to be considered a safe investment for the public at large.

'Fool's errand'
Bitcoin has suffered a painful year of declines from its all-time high of $19,511 (about Rs. 13.9 lakhs) in December 2017.

Some of the currency's problems have been attributed to its business model.

Bitcoins are created through a process called computer "mining".

This essentially involves using massive banks of interconnected processors to resolve complex math problems.

The computations get progressively} harder to crack the more bitcoins there are on the market. The electricity costs involved grow as a result.

One market estimate created last month put the cost of mining one bitcoin at $7,000 (about Rs. 5 lakhs).

This means market players are currently creating new coins at a loss.

Traders had been hoping to get a big boost with the approval by the us Securities and Exchange Commission (SEC) of a bitcoin exchange-traded fund (ETF).

The investment instruments essentially operate as a stock that closely tracks each bitcoin's market value.

ETFs are one of the most popular trading mechanisms and the SEC's green light would give the bitcoin market a massive infusion of outside cash.

But the SEC has thus far balked out of concerns about fraud.

Some of the losses since wednesday have also been linked to a warning from the accounting group KPMG last week about the dangers of viewing bitcoin as a real currency.

"To fulfil the requirements of 'store of value', cryptocurrencies must be much more stable," the KPMG report said.

"Extending credit in a currency that risks significant devaluation or borrowing if the value appreciated beyond the borrower's ability to pay would be a fool's errand," said the report.

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