Bitcoin slides as Bank of England warns on crypto dangers

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The Bank of England’s December Financial Stability Report said markets and activities related to cryptoassets continue to grow and develop rapidly.Photo: Getty Major cryptocurrencies were down on Tuesday morning as the Bank of England (BoE) warned the rapid growth of crypto will create stability risks in the future. But joke token dogecoin ( DOGE-USD )…

The Bank of England’s December Financial Stability Report said markets and activities related to cryptoassets continue to grow and develop rapidly.Photo: Getty Major cryptocurrencies were down on Tuesday morning as the Bank of England (BoE) warned the rapid growth of crypto will create stability risks in the future.

But joke token dogecoin ( DOGE-USD ) was up after Tesla ( TSLA ) CEO Elon Musk said the electric carmaker will accept dogecoin for its merchandise on a trial basis.

The BoE’s December Financial Stability Report said markets and activities related to cryptoassets continue to grow and develop rapidly.

It said cryptoassets currently pose limited direct risks to UK financial stability but they will present “a number of financial stability risks” if they continue to grow at their current rapid pace, and as they become more interconnected with the wider financial system.

It called for enhanced regulatory and law enforcement frameworks, both domestically and at a global level to manage risks, encourage sustainable innovation and maintain broader trust and integrity in the financial system.

Bitcoin ( BTC-USD ) was down 3.5% to trade at $47,371 (£35,834).Ethereum ( ETH-USD ), the world’s second largest crypto by market cap, was down 5.2% and trading at $3,814.

Bitcoin was down on Tuesday morning.Chart: Yahoo Finance UK Bitcoin is trading below a key level of $50,000 and is about 30% down from its all-time high of around $69,000, which it hit in November.

“It seems like the bears have taken control of crypto markets as bitcoin, the king of cryptocurrencies, fails to breach the crucial $50,000 level and tumbled as much as 8.4% on Monday to $45,773,” said Naeem Aslam, chief market analyst at AvaTrade.

The drop in bitcoin prices on Monday pushed the digital coin below its 200 days average “which is negative news for crypto enthusiasts,” he said.

Similarly, the Bloomberg Galaxy Crypto Index dropped about 7.40% which shows that sentiment in broader crypto markets has taken a hit.

“The recent price action of cryptocurrencies disputes the argument that the blockchain space has finally matured because of which extreme volatility in markets will likely decrease moving forward,” he said.

Story continues He added that some investors consider digital coins to be a hedge against inflation, and rising consumer prices were to some extent able to provide some support to crypto markets last week.

However, crypto markets were not able to sustain the rally.

Read more: Live crypto prices

“If bitcoin is a hedge against inflation, as many seem to think, then it’s not doing a very good job of reacting to the data,” said Mati Greenspan, founder of Quantum Economics.

Some analysts had forecast bitcoin would hit new all-time highs before the end of the year.

Some had even said it could go as high as $100,000.

These hopes “have mostly been dashed, though there still may be a few hopeful analysts.

At this point, it seems to me that the possibility for more short-term pain is a bit more prevalent,” said Greenspan.

Farah Mourad, senior market analyst of XTB MENA said the broad decline in cryptos followed investors moving away from risky assets as the US Federal Reserve is expected to accelerate its quantitative easing tapering.

She pointed out that capital flows towards cryptos were lower for the second week, dropping below $100m.

Meanwhile, dogecoin was up 17% to trade at $0.193 after Musk said some of Tesla’s products can be bought with the meme token.

Tesla will make some merch buyable with Doge & see how it goes

— Elon Musk (@elonmusk) December 14, 2021

“Musk has brought a rally for the Dogecoin once again by making it official that you can use the Dogecoin to buy some [Tesla] merchandise,” said Aslam, adding: “Traders are highly likely to speculate his next move and now the chatter of buying Tesla with bitcoin is going to increase.”

Tesla sells merchandise such as apparel, belt buckles and mini models of its cars.

Musk had announced Tesla would accept bitcoin as a form of payment, only to reverse course shortly after, citing worries about the impact on the climate of bitcoin mining — which is substantial.

Since then though there has been some developments in making the mining greener.

“We already know that Musk has softened his stance towards bitcoin as most of the energy is from renewable sources.We believe the news is actually very powerful for the crypto industry and Musk is very much Jesus of the crypto industry as he has massive power to move the cryptocurrencies through his tweets,” Aslam said.

Read more: Tesla founder’s top tweets of 2021 that moved markets and crypto

But many are critical of this power.

“If the ‘Musk effect’ is to subside” and if cryptocurrency is to enter mainstream adoption, educating people on cryptocurrency markets will be key, Luno’s UK manager, Sam Kopelman told Yahoo Finance UK.

“As more people understand the fundamentals of crypto, they’ll begin to build a sold conviction which will allow them to withstand fluctuating changes of sentiment.It’s here that crypto native organisations can provide customers with simple, transparent and easy to understand information.”

Watch: What are the risks of investing in cryptocurrencies?.

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