What is bitcoin?
Bitcoin is the world’s most popular digital currency. It allows people to bypass banks and traditional payment methods and is not controlled by any single entity, country or central bank. There are more than 18m bitcoins in existence.
What do its backers say about it?
Some supporters believe bitcoin could eventually replace fiat (government-issued) currencies thanks to the growing popularity of digital payments. Others also say it is protected from manipulation by governments and central banks, offering a more democratic payment system.
Meanwhile, investors believe it can provide a hedge against inflation, and analysts at JP Morgan have even likened it to haven assets such as gold.
What do its critics say?
Sceptics claim that bitcoin has no intrinsic value and say it poses a risk for investors, who are not protected by regulators or financial protection schemes if the asset tanks.
Critics also warn that investors could be exposing themselves to fraud, since cryptocurrencies like bitcoin have been linked to money laundering and black market dealings. There are also concerns about the environmental impact of bitcoin “mining”, which requires energy-intensive computers to generate coins.
How well has it been doing recently?
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Bitcoin made significant gains at the start of 2021. By mid-April, it hit all-time highs of more than $64,000 per unit, jumping more than 450% in just six months.
Its meteoric rise in value has sparked further interest from institutional investors and major banks like Goldman Sachs, which set up its bitcoin trading desk earlier this month.
Why is it crashing today?
Bitcoin’s price plunged by nearly 30% to almost $30,000 (£21,000) on Wednesday after Chinese regulators announced that they were banning banks and payment firms from using cryptocurrencies.
But the selloff started last week after the Tesla founder suspended plans to let customers pay in bitcoin. Elon Musk, who is seen as a staunch supporter of cryptocurrencies, was also caught in a confusing exchange on Twitter about plans for Tesla’s bitcoin holdings that spooked investors.
TheGuardian
