More than $200billion was wiped off the value of the global cryptocurrency market, after bitcoin’s value fell by more than 20 per cent in just four days, setting alarm bells ringing in Wall Street. 

Bitcoin prices surged to a new all-time high of nearly $42,000 on Friday, with the total digital coin market worth an estimated $1.07 trillion. 

But on Monday, bitcoin’s value had plunged by 22% all the way back to about $31,000, making the market worth $880 million. 

However, experts have claimed that the sudden drop should be welcomed as a ‘healthy correction’, after the 12-year-old cryptocurrency had soared to unsustainable, record-high prices. 

Bitcoin's value surged by 900% since March, which The Bank of America warned could be 'the mother of all bubbles'

Bitcoin's value surged by 900% since March, which The Bank of America warned could be 'the mother of all bubbles'

Bitcoin’s value surged by 900% since March, which The Bank of America warned could be ‘the mother of all bubbles’ 

Bitcoin's value dropped by 22% in four days, from $42,000 on Friday to $31,000 on Monday, wiping $200million off its value, but experts say it is a healthy reset

Bitcoin's value dropped by 22% in four days, from $42,000 on Friday to $31,000 on Monday, wiping $200million off its value, but experts say it is a healthy reset

Bitcoin’s value dropped by 22% in four days, from $42,000 on Friday to $31,000 on Monday, wiping $200million off its value, but experts say it is a healthy reset

This chart shows the growth in Bitcoin's value during 2020, a meteoric rise which saw it surpass $20,000 for the first time on December 16. It later hit an even bigger high of nearly $42,000 on Friday, before plummeting to $31,000 on Monday

This chart shows the growth in Bitcoin's value during 2020, a meteoric rise which saw it surpass $20,000 for the first time on December 16. It later hit an even bigger high of nearly $42,000 on Friday, before plummeting to $31,000 on Monday

This chart shows the growth in Bitcoin’s value during 2020, a meteoric rise which saw it surpass $20,000 for the first time on December 16. It later hit an even bigger high of nearly $42,000 on Friday, before plummeting to $31,000 on Monday 

Last week strategists at The Bank of America had already warned that the rapidly rising price of bitcoin may be ‘the mother of all bubbles’, comparing it to the tech boom in the late 1990s.   

Naeem Aslam, chief market analyst at AvaTrade, said the drop was therefore  considered a welcomed ‘healthy correction’ that ‘was due a long time ago’, as reported by CNN. 

James Putra, vice president of product strategy for TradeStation Crypto, added: ‘It’s scary when the price of bitcoin just goes straight up. This pullback was needed.’      

Bitcoin first surpassed the $20,000 level in mid-December and soared above $30,000 earlier this month; a huge rebound from a low of just above $4,000 as the Covid-19 outbreak sent global financial assets plummeting last spring. 

In total it jumped more than 900 percent from a recent low of $3,850 in March. 

The massive spending on Covid-related stimulus packages had raised fears about rising inflation and U.S. dollar debasement, and investors flocking to bitcoin as a safe haven. 

Prior to the crash, on January 5 investment bank JP Morgan said that Bitcoin has emerged as a rival to gold and could trade as high as $146,000 if it becomes established as a safe-haven asset.   

Many experts remain optimistic about the future of the digital currency that was invented in 2009 by an anonymous person or group known by the pseudonym Satoshi Nakamoto. 

Even with the weekend’s crash, bitcoin remains up by 10% in 2021. 

Research produced  from The University of Cambridge, in the UK, estimated that there are between 2.9 to 5.8million unique users using a cryptocurrency wallet in 2017, most of them using bitcoin.

The cryptocurrency is gaining traction with more mainstream investors who are increasingly convinced that bitcoin will be a long-lasting asset, and not a speculative bubble as some analysts and investors fear. 

WHAT IS BITCOIN AND HOW DOES IT WORK?

What are Bitcoins?

Bitcoin is a cryptocurrency – an online type of money which is created using computer code.

It was invented in 2009 by someone calling themselves Satoshi Nakamoto – a mysterious computer coder who has never been found or identified themselves.

Bitcoins are created without using middlemen – which means no banks take a fee when they are exchanged.

They are stored in what are called virtual wallets known as blockchains which keep track of your money.

One of the selling points is that it can be used to buy things anonymously.

However, this has left the currency open to criticism and calls for tighter regulation as terrorists and criminals have used to it traffic drugs and guns.

How are they created?

Bitcoins are created through a process known as ‘mining’ which involves computers solving difficult maths problems with a 64-digit solution.

Every time a new maths problem is solved a fresh Bitcoin is produced.

Some people create powerful computers for the sole purpose of creating Bitcoins.

But the number which can be produced are limited – meaning the currency should maintain a certain level of value.

Why are they popular?

Some people value Bitcoin because it is a form of currency which cuts out banking middlemen and the Government – a form of peer to peer currency exchange.

And all transactions are recorded publicly so it is very hard to counterfeit.

Its value surged in 2017 – beating the ‘tulip mania’ of the 17th Century and the dot com boom of the early 2000s to be the biggest bubble in history.

But the bubble appears to have now burst and questions remain over what market there is for it long-term.

Some shops and restaurants are accepting for purchases, but overall this is a tiny part of the market of the real economy.

While there are concerns Bitcoins can be hacked.

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This post first appeared on Dailymail.co.uk

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