The price of Bitcoin has dropped 29pc in the past month to $48,261 (£36,394) per coin, after the online token reached over $68,000 on November 8.
News of the South African variant of Covid-19 has shaken the cryptocurrency , mimicking drops seen elsewhere in the traditional stock market and raising questions over Bitcoin’s alleged status as a “safe haven” asset.
The cryptocurrency’s recent fall in value has undermined predictions that it would reach $100,000 per coin by the end of 2021.
Proponents of Bitcoin argue that it acts as “digital gold” and can buffer investors against rising prices. Like physical gold it is scarce, as only 21 million Bitcoin can ever be created, which means that its value should rise when normal currencies lose their buying power.
The recent record-high for Bitcoin follows the launch of the first Bitcoin exchange-traded fund in America, which allows American investors to buy the cryptocurrency as easily as they can stocks. Acceptance by the American financial regulator also suggests that Washington will not crack down on cryptocurrencies.
Bitcoin sceptics counter that the cryptocurrency has no intrinsic value as few people use it to buy things, it is unproven as a safe haven asset and faces the threat of legal clampdowns that could make it worthless.
So should you buy some, and is it safe to do so?
‘Bitcoin could fall to zero’
The Financial Conduct Authority, the City regulator, warned that people buying Bitcoin did not understand it and it was extremely risky as prices could fall to zero.
It found that only 58pc of people believed they had a good understanding of how cryptocurrencies worked and warned investors betting on the cryptocurrency to be “prepared to lose all their money”.
The watchdog highlighted the lack of protection for investors as cryptocurrencies were unlikely to be covered by the Financial Ombudsman Service and Financial Services Compensation Scheme. The FCA also warned investors to be alert to scams.
Pimfa, a trade body for the wealth managers, said crypto was extremely high risk. Tim Fasson, of Pimfa, said: “For some people desperate for a quick and easy solution to their own financial turmoil, cryptocurrencies might look attractive. But they are extremely high-risk and highly-volatile investments that only the most sophisticated of investors should consider.”