Dallas Mavericks owner Mark Cuban – who said in March the baseball team would accept Dogecoin as payment – called the crash over the weekend the start of the ‘great unwind’
Cryptocurrencies fought back on Monday following a weekend selloff that had been fueled by further signs of a Chinese crackdown on the emerging sector.
Bitcoin jumped more than 12 percent to $38,009.88 Monday morning, erasing losses of 7.5 percent from a day earlier. Still, it’s down by 40 percent from last month’s record high of $64,895.
The second-largest cryptocurrency, ether, jumped more than 30 percent to as high as $2,513.17 after slumping more than 8 percent on Sunday to near a two-month low. Yet it, too, has fallen by almost half from peak hit earlier this month.
The catalyst for the Sunday slump was cryptocurrency ‘miners’ – which mint cryptocurrencies by using powerful computers to solve complex math puzzles – halting Chinese operations in the face of increasing scrutiny from authorities.
And despite signs of stabilization, on Monday Dallas Mavericks owner Mark Cuban – who said in March the baseball team would accept Dogecoin as payment – called the crash over the weekend the start of the ‘great unwind’ – saying prices are likely to fall further.
As for its part, dogecoin, which had been started as a joke but then zoomed higher when embraced by Tesla boss Elon Musk, was up about 20% on Monday trade, to fetch around 32 cents.
Musk – whose comments on cryptocurrencies have been a key price driver in recent months – on Saturday tweeted support for crypto in ‘the true battle’ with ‘fiat’ currencies, or ones whose value isn’t backed by a commodity like gold, but are backed by a government, like the dollar and pound.
A fear and greed index by software comparison company Alternative shows that for investors ‘extreme fear’ has set in
Bitcoin jumped more than 13 percent to $38,009.88 Monday morning, erasing losses of 7.5 percent from a day earlier but still down by 40 percent from last month’s record high
Second-largest cryptocurrency ether jumped more than 30 percent to as high as $2,513.17 after slumping more than 8 percent on Sunday to near a two-month low. Yet it too has fallen by almost half from peak hit earlier this month
Dogecoin, launched as a parody before Musk’s backing vaulted it up more than a hundredfold this year, last traded at $0.33
The catalyst for the Sunday slump was cryptocurrency ‘miners’ – who mint cryptocurrencies by using powerful computers to solve complex maths puzzles – halting Chinese operations in the face of increasing scrutiny from authorities
Bitcoin is still almost twice as high as the $19,046 it stood at six months ago and four times as high as the $9,193 it was trading at a year ago. But a fear and greed index by software company Alternative shows that for investors ‘extreme fear’ has set in.
The attention on miners in China – which account for some 70 percent of supply – is the latest front in a wider push by Beijing against the cryptocurrency sector.
WHAT IS BITCOIN AND HOW DOES IT WORK?
What are Bitcoins?
Bitcoin is a cryptocurrency – an online type of money which is created using computer code.
It was invented in 2009 by someone calling themselves Satoshi Nakamoto – a mysterious computer coder who has never been found or identified themselves.
Bitcoins are created without using middlemen – which means no banks take a fee when they are exchanged.
They are stored in what are called virtual wallets known as blockchains which keep track of your money.
One of the selling points is that it can be used to buy things anonymously.
However, this has left the currency open to criticism and calls for tighter regulation as terrorists and criminals have used to it traffic drugs and guns.
How are they created?
Bitcoins are created through a process known as ‘mining’ which involves computers solving difficult maths problems with a 64-digit solution.
Every time a new maths problem is solved a fresh Bitcoin is produced.
Some people create powerful computers for the sole purpose of creating Bitcoins, which can require a huge amount of energy to run.
But the number which can be produced are limited – meaning the currency should maintain a certain level of value.
Why are they popular?
Some people value Bitcoin because it is a form of currency which cuts out banking middlemen and the Government – a form of peer to peer currency exchange.
And all transactions are recorded publicly so it is very hard to counterfeit.
Major cryptocurrency exchange Huobi on Monday suspended both crypto-mining and some trading services to new clients from mainland China, adding it would instead focus on overseas businesses. Others also suspended business in China.
In the short-term, market players said, that is likely to lead to pressure on prices as miners sell bitcoin held on their balance sheets.
‘If they are pulling up stakes or shutting down, they may need to reduce their balance sheets in the short term,’ said James Quinn, managing partner at Q9 Capital, a Hong Kong-based cryptocurrency private wealth manager.
Crypto market players said fears over the China crackdown would likely linger.
Meanwhile, some big traditional money managers are warning regular investors to stay away from the crytpocurrency market if they can’t handle the volatility.
In other words, don’t invest money you can’t afford to lose.
UBS Global Wealth Management’s chief investment officer, Mark Haefele, said: ‘The high volatility of cryptos makes them an unreliable store of value. Weekly moves of more than 10% in bitcoin are common. In the week to 14 May, bitcoin fell 24%, which would be a high level of volatility for a small-cap stock, let alone a currency.’
That turbulence may make it an investment that average investors should steer clear of.
‘Nobody’s really sure about what happens next,’ said Joseph Edwards, head of research at crypto brokerage Enigma Securities. ‘Crypto clearly finds itself in a tough spot in terms of the narrative right now, and it’s taken a lot of oxygen out of the room.’
‘It is too early to call the end of the recent bitcoin downtrend,’ J.P. Morgan analysts wrote.
The collapse leaves the world’s biggest cryptocurrency back where it traded in February, before Tesla announced a $1.5 billion bitcoin purchase and made a since-reversed decision to accept it as payment for cars.
Investor protection and money laundering are particular concerns of global financial regulators who are grappling with whether and how they should regulate the cryptocurrency industry.
The latest shakeout in digital currencies also stems from tighter scrutiny in the United States.
Last Thursday, U.S. Federal Reserve Chairman Jerome Powell said they pose risks to financial stability, and indicating that greater regulation of the increasingly popular electronic currency may be warranted.
The annual energy consumption of China’s cryptocurrency miners is expected to peak in 2024 at about 297 terawatt-hours, greater than all the power consumption by Italy in 2016, according to a study recently published in scientific journal Nature Communications.
Chinese President Xi Jinping has pledged carbon neutrality by 2060.
Pictured: A graph showing data from the Cambridge Bitcoin Electricity Consumption Index (CBECI) that shows the energy consumed by Bitcoin. Consumption increased to its highest ever levels towards the end of last year, with the rates continuing to rise into 2021. The CBECI calculates Bitcoin’s total energy consumption is currently between 40 and 445 annualised terawatt hours (TWh), with a central estimate (yellow line) of about 130 TWh
Bitcoin remains over 40 percent below last month’s record high of $64,895. It is still almost twice as high as the $19,046 it stood at six months ago and four times as high as the $9,193 it was trading at a year ago.
Investor protection and money laundering are particular concerns of global financial regulators who are grappling with whether and how they should regulate the cryptocurrency industry
The latest shakeout in digital currencies also stems from tighter scrutiny in the United States
Chen of Novem Arcae said the crypto craze, if not curbed, could turn into froth similar to the Dutch tulipmania in the 17th century – often regarded as the first financial bubble in recorded history.
‘The only difference is that after the tulip bubble burst, there were still some beautiful flowers left,’ Chen said.
‘But when the virtual currency bubble bursts, what would be left are merely some computer codes.’
Musk had bought $1.5billion of bitcoin for his company and stated it would take it in payment for cars, before latterly announcing Tesla would no longer accept the cryptocurrency and citing environmental concerns.
Tesla boss Elon Musk’s comments on cryptocurrencies have been a key price driver in recent months
On Saturday Musk tweeted support for crypto in ‘the true battle’ with fiat currencies
Over the weekend, asked about the anger he had generated with his bitcoin posts, Musk replied to a tweet stating: ‘The true battle is between fiat & crypto. On balance, I support the latter.’
Bitcoin and crypto investors are used to volatility but the rapid 50 per cent decline from its April high has caught many by surprise and there are concerns that those drawn into investing recently by the rapid rise in prices since late last year could have lost substantial sums.
Bitcoin and cryptocurrency is highly volatile and financial planning advice is that such a high risk asset should not make up more than a small percentage of a diversified portfolio.
How Bitcoin is eating the Earth: Computers creating ‘worthless’ cryptocurrency drive global warming as they use vastly more electricity than all the internet giants combined
Powerful computers ‘mining’ for the cryptocurrency Bitcoin are driving global warming as data shows they use vastly more electricity than all the internet tech giants combined.
It raises questions over the vast energy resources required to run machines that mine for the cryptocurrency, that some – including billionaire Warren Buffet – even consider to be worthless.
On March 2, Bitcoin’s estimated energy consumption reached its highest ever rate, hitting a staggering 130.90 terawatt hours (TWh) annualised. The following week on March 9, billionaire Microsoft co-founder Bill Gates highlighted the negative impact mining Bitcoin has on the environment.
‘Bitcoin uses more electricity per transaction than any other method known to mankind,’ Gates said, speaking to the The New York Times. ‘It’s not a great climate thing’, he added.
Pictured: A graph showing the amount of energy in terawatt hours (TWh) consumed by tech giants, electric vehicles and Bitcoin mining (lower, central and upper bounds). The bar second from right shows the current annual bitcoin consumption, that on March 3 was at a rate of 130.9 terawatt hours (TWh), roughly the same as New Zealand and Argentina
The cryptocurrency is ‘mined’ by high-powered computers that continuously solve computational maths puzzles, the complexity of which means the processors require huge amounts of energy. While the machines use electricity, fossil fuel is a major category in electricity generation.
In a post on Medium, computational artist Memo Atken explained that ‘endless arrays of computers are sitting around in giant data-center like mining farms around the world, doing nothing but generating random numbers all day every day, in the hopes of rewarding their owners.’
Despite the amount of time, effort and energy resources that goes into mining Bitcoin, some remain skeptical of its value, with Warren Buffet in 2020 blasting the currency, calling it ‘rat poison squared’.
Pictured: The data centre of BitRiver company providing services for cryptocurrency mining in the city of Bratsk in Irkutsk Region, Russia March 2, 2021. The cryptocurrency is ‘mined’ by high-powered computers that solve computational maths puzzles, the complexity of which require huge amounts of energy
‘Cryptocurrencies basically have no value and they don’t produce anything. They don’t reproduce, they can’t mail you a check, they can’t do anything, and what you hope is that somebody else comes along and pays you more money for them later on, but then that person’s got the problem. In terms of value: zero,’ he said in February last year, according to CNBC.
As Bitcoin’s value has increased, so has its demand, with more people setting up Bitcoin miners in the hope that they will strike gold with the digital currency, potentially making thousands of pounds.
However, studies have shown that the annual carbon emissions from the electricity generated to mine and process the cryptocurrency is equal to the amount emitted by whole countries, including New Zealand and Argentina, with the upper-bound estimate being higher than that of even the UK.
Bitcoin mining’s energy consumption also eclipses that of the world’s major tech companies that provide entertainment services, including the streaming giant Netflix as well as Apple, Facebook, Microsoft and Google combined – all of which also require huge amounts of energy to run their services.
By comparison, Google – the largest energy consumer of the tech giants – used 10 TWh in 2019. On March 13, Bitcoin was using 130.9 TWh (annualised). The UK’s electricity consumption is slightly more than 300 TWh a year.
Data from the Cambridge Bitcoin Electricity Consumption Index (CBECI) shows that the energy consumed by Bitcoin increased to its highest ever levels towards the end of last year, with the rates continuing to rise into 2021.
The CBECI calculates Bitcoin’s total energy consumption is currently between 40 and 445 annualised terawatt hours (TWh), with a central estimate of about 130 TWh. At the start of 2021, the central estimate was at 109 TWh.
Matching the energy consumption trend, the value of Bitcoin reached a record rate in December 2020 when it surpassed the previous record of over $18,000 in 2017.