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The crypto currency markets seem to be going through their first real test of faith this week as the price of Bitcoin started to falter amid fears of Bitcoin fraud and a move by regulators globally to begin to contain the crypto currency markets.

In Asia the regulatory backlash against Bitcoin has been most marked. China, which is the source of much of the Bitcoin mining activity which goes on, is going to limit the amount of electricity Bitcoin miners consume in the country. This is estimated to be somewhere in the region of 4 gigawatts, the equivalent of the production of three nuclear reactors.

China’s regulators have already been active in a crackdown on numerous Ponzi schemes in the country, like Onecoin, which they claim were being used to raise illicit funds. China is reportedly about to block any cryptocurrency platforms that make use of centralized platforms.

UK concerned investors not protected against Bitcoin fraud

In the UK Nicky Morgan, chairman of the Treasury Select Committee, has told MPs she will seek expert advice about a potential Parliamentary probe into Bitcoin. She says that both the Financial Conduct Authority and the Bank of England have been seeking to make investors aware that they do not enjoy any protection from the government or regulators for crypto currency investments. If you are trading these currencies directly, and something goes wrong, there is no recourse to the FCA.

Morgan put the kaibosh on the possibility of UK-listed Bitcoin futures, saying it was too soon for such products to be launched, despite the fact that CME has already launched Bitcoin futures in the United States.

In the US itself, whereas JPMorgan CEO Jamie Dimon may have stepped back from his comments last year that Bitcoin was a pyramid scheme, the CEO of Wells Fargo, Dick Kovacevich, was particularly critical:

“I think it’s a pyramid scheme, it makes no sense, and I’m surprised it is not even lower,” he said this week. “You’re betting someone is going to buy it, but the fundamentals make no sense.”

All this negative sentiment was doing no favours for the prices of cryptocurrencies this week. At the time of writing, Bitcoin was trading at $11,600 while Ethereum was at $1095. This represents a significant fall for Bitcoin from the highs set at the end of last year. Bitcoin is having a nightmare month of it, having coughed up close to a third of its price in the space of 30 days. Ethereum is down considerably from the $1448 level it set last weekend, having suffered similar losses since the beginning of the year.

The Armchair Trader says:

We have always anticipated that Bitcoin would run into trouble at some stage. This is not to dispute that crypto currencies have an important future role to play in the future of the digital economy. However, the rise in the price of Bitcoin in the fourth quarter of last year was far too spectacular to be sustained. Investors were pouring into Bitcoin solely because it was going up in price, creating a speculative bubble. On top of this, there was increasing evidence that many Bitcoin trading venues would be simply unable to cope with the increased activity, with the best will in the world.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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