Regulators have issued new warnings about investing in cryptocurrencies after Bitcoin skyrocketed to a new all-time high last week.
The UK’s Financial Conduct Authority (FCA) has warned consumers about the high risks involved in investing in cryptocurrencies.
“Investing in crypto assets, or related investments and loans, usually involves taking very high risks with investor money,” the city watchdog said in a statement. “If consumers are investing in these types of products, they have to be prepared to lose all of their money.”
The warning closely follows the regulator’s ban on selling crypto-derivatives to consumers, which came into effect on January 6.
As of this week, all crypto asset companies in the UK are required to be registered with the FCA as part of the regulations to target money laundering.
The President of the European Central Bank (ECB), Christine Lagarde, also called Wednesday for global regulation of Bitcoin.
“(Bitcoin) is a highly speculative asset, which has conducted some fun and interesting and totally reprehensible money laundering and money laundering activities,” Lagarde said in an interview with the Reuters Next conference.
The warnings, along with increased regulatory oversight, come as Bitcoin hit a record high of over $ 41,000.
A new double peak, the highest of 2017
Bitcoin’s first price spike came in 2017, hitting nearly $ 20,000. A year later, the price fell below $ 4000.
However, the latest wave of Bitcoin was not motivated by mere investor hype, according to James Iuorio, broker, trader and managing director of TJM Institutional.
“In 2017, when the price of bitcoin rose to $ 20,000, it was just people adopting exciting new technology, it became like a religion among enthusiasts.
“[Last year’s] The initial move to $ 20,000 was a real concern about the exchange rate policies implemented by the Federal Reserve, ”says Iuorio. “Rates were held at zero for long periods of time and a federal government that was going to throw everything into deficit spending on the current problem. This made people wonder what the role of the dollar would be in the future.
While Iuorio does not predict a currency crisis, he does say that even the possibility that current monetary policy increases the risk of a stress scenario could invite investors to hedge. In the eyes of some investors, Bitcoin has joined the ranks of gold and silver as a safe haven asset.
Iuorio, however, attributes the remainder of the surge, from $ 20,000 to over $ 40,000, to a fear of missing out (FOMO). “Once we got past the $ 20,000, I think the animal spirits came in. It was mainly the fear of missing something that drove him from $ 20,000 to $ 40,000. It happened in the blink of an eye.
Institutional investors are piling up
Another trader, Scott Bauer, CEO of Prosper Trading Academy, acknowledges that FOMO is partly to blame, but adds that the December surge also coincided with the arrival of many institutional investors in the market.
“Institutional buyers have piled up in the market since Bitcoin hit around $ 20,000. [They are] not only in the coin itself, but also by investing in futures positions. It’s really fueled a good chunk of the recovery because these institutional buyers aren’t here to trade, they’re here to buy and hold.
According to the CME, Bitcoin futures trading is up 114% year-over-year as of December 2020. The number of large open interest holders is also up 121% from at the same time last year, indicating a growing interest of institutional investors in cryptocurrency. In total, more than 2.2 million Bitcoin futures were traded in 2020.
However, not all are optimistic about the future of Bitcoin.
“The last two years of Bitcoin have blown the doors of previous bubbles,” according to a report from Bank of America (BoA).
Since 2019, the cryptocurrency has jumped over 900%. By comparison, the dot-com bubble only peaked around 300%, the BoA report notes.
Even if Bitcoin fell to $ 20,000, Bauer wouldn’t see it as an asset bubble.
“Someone who wants to actively trade has to go into this process knowing that they could see 20% fluctuations at any time,” he says. “Do I see a bubble forming? I certainly see a near-term peak; it wouldn’t surprise me to see Bitcoin lose 20-25%.
“It would surprise me to see him go down to his teenage years, but it wouldn’t surprise me to see him go back up to the mid-20s. I wouldn’t call it a bubble. I would call it a correction.