Why is the cryptocurrency market going up in price?
THE cryptocurrency market including Bitcoin has bounced back from a dip last week.
But what is causing these price spikes and should investors be thinking about entering these extremely volatile markets?
Bitcoin is up 1.93% this afternoon, rising to $58,404.06 and Ethereum had risen 7.29% to $4,667.98 at the time of writing.
Solana rose 2.51% to $213.89, Cardano was up 1.38% to $1.60 and XRP jumped 3.99% to $1.03 , according to Coinmarket cap.
The total market is up 3.4% in the past 24 hours.
Why are cryptocurrencies rising?
The first thing to know is that cryptocurrencies are extremely volatile, which means their prices can rise and fall in the blink of an eye.
You should only invest if you can afford to lose the money.
These types of investments are very complex and open to scams. Don't part with any cash unless you are happy to risk that you may not get it back.
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While lots of these virtual currencies are currently seeing price spikes, they could easily come crashing down without any notice.
The cryptocurrency market is rising today but it's still been volatile trading.
Bitcoin is currently bouncing back from lows recorded last week, and has rebounded to reach more than $58,000.
But that's still down on the highs of $68,000 it hit earlier this month.
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One reason for last week's dip could have been a statement from US banking regulators, hinting of a potential crackdown on cryptocurrencies and increased regulation.
"The agencies have identified a number of areas where additional public clarity is warranted," the agencies said. "Throughout 2022, the agencies plan to provide greater clarity on whether certain activities related to crypto-assets conducted by banking organizations are legally permissible, and expectations for safety and soundness, consumer protection, and compliance with existing laws and regulations."
It's not clear what is currently causing the bounce back, but it could be caused by investors buying bitcoin while the price was lower.
One of those is reportedly El Salvador, which bought 100 more bitcoins last week, according to trading platform Coindesk.
The country revealed plans earlier this month to build a "Bitcoin City" on the side of a volcano, and has already made Bitcoin legal tender.
It will be built near the Conchagua volcano to take advantage of geothermal energy to power the city and Bitcoin mining - which demands energy-intensive solving of complex mathematical calculations.
There will also be no property, income or municipal taxes and the city would have zero carbon dioxide emissions, El Salvador's president said.
Why is investing in cryptocurrencies so risky?
All investments can go up as well as down, but cryptocurrency is far more volatile than many other asset classes, meaning it is very high risk.
All of the cryptocurrencies are a speculative investment, with limited track records, so it's hard to predict what will happen next.
There are also significant fears that many of these currencies are an investment bubble that could burst, leaving investors with next to nothing when prices drop.
There is no guarantee that you can convert your virtual coins back into cash, as it may depend on the demand and supply in the existing market.
With very few options for "spending" the coins - you could be stuck with assets that are plummeting in value.
Cryptocurrency firms are not regulated in the way that other financial services and investment firms are. This means that you won't have any protection if things go wrong.
You won’t be able to take a complaint to the Financial Ombudsman Service and there aren't any protections if the companies go bust, for example.
UK Crypto businesses must register with the Financial Conduct Authority on the - but the watchdog doesn't have any powers over how they carry out their business.
In fact, in January, the Financial Conduct Authority warned that Brits risk losing ALL of their money if they invest in cryptocurrencies.
Ms Streeter said: "Investors would be wise to heed the warnings from the Financial Conduct Authority that dabbling in products they don’t fully understand could have a serious impact on their wallet, given that they risk losing all the money they put in.
"Increasing numbers of traders are being persuaded to take the plunge by influencers on social media, and chatter across internet forums.
"FCA research has shown that many people who put money into high risk products appear to be thrill seekers who are investing for a challenge or for competition."
How to make sure you avoid the scams
If you do want to invest in cryptocurrency, you need to make sure you've done your research thoroughly.
You can start by checking this with the FCA. If a company is on this list then they may be operating illegally.
The cryptocurrency marketplace is a target for fraud, with more than £2million lost scams - that’s over £10,000 per person - between June and July 2018, according to Action Fraud.
If it sounds too good to be true, it probably is - so avoid anything that promises sky high returns or has heavy marketing offers.
Research thoroughly and make sure you understand how the business works, how it plans to make money and grow and find out about the people who set it up.
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