The decisions of China and Tesla should serve to remind investors that trading digital currencies is equivalent to walking a tightrope without a net
The fall from grace that bitcoin is experiencing may be a conjunctural phenomenon or the beginning of a more profound breakdown, but it cannot be said that it is an unimaginable surprise, given the high volatility that this asset offers and the many questions that surround its reliability as an investment. The cryptocurrency, which has lost 42% of its value since the highs reached a month ago, has received two major blows in recent times. The most important has been the decision of the Chinese Government to prohibit financial institutions from carrying out any operation with virtual currencies, a strong setback that adds to the change in strategy of Tesla, the electric car manufacturer, which has stopped accepting bitcoins as a form of payment. As a first reaction to this chain of setbacks,
The heavy energy expenditure required by bitcoin mining explains Beijing’s decision, which is also justified by the highly speculative nature of cryptocurrencies and their high potential as a means of money laundering. In spite of everything, China is neither the first nor the only voice that has been raised against these types of assets. Both the FED, the ECB and other supervisors have strongly and clearly warned of the danger involved in trading cryptocurrencies and the lack of protection with which investors act in this area. The CNMV and the Bank of Spain have also pointed out on several occasions the complexity and high risk that surrounds both virtual currencies and derivatives on them. The two organizations have warned of the growing publicity, “sometimes aggressive”, to attract investors with little experience.
All these alerts are especially relevant these days, when the cancellation of investments made through derivatives or with debt adds even more violence to the collapse of these assets, which are registering daily movements of more than 10%. China’s offensive introduces a strong question mark when it comes to assessing the future of digital currencies and making forecasts about their evolution in the market in the coming months, but it should serve to remind investors that trading cryptocurrencies is equivalent to walking without a net on a tightrope.