Bitcoin price: Why has it gone down?

BITCOIN'S price has dropped again after fluctuating wildly recently.

The cryptocurrency hit record highs at the start of 2021 before dropping in May following regulatory crackdowns in countries such as China and India and it has started 2022 on a downward trend.

Interest in the cryptocurrency has increased as more mainstream organisations have become involved.

For example, PayPal will now let users buy and sell Bitcoin.

Tesla boss Elon Musk also helped drive up the price of Bitcoin last year when he said it could be used to purchase the brand's electric cars.

However, the value dropped when Musk later backtracked and said his electric car company would not accept the digital currency due to environmental concerns over how it is mined.

China has also banned banks from providing services related to cryptocurrency transactions, and warned investors against speculative crypto trading.

Investing in any cryptocurrency is highly risky and you should never put in money that you can't afford to lose.

The FCA warned last year that Brits risk losing their savings if the price of Bitcoin plummets.

It is important to never invest in something you don't understand.

Bitcoin is a virtual currency that was created in 2009 by an unknown computer whizz using the alias Satoshi Nakamoto.

Unlike physical currencies such as pounds, dollars or euros, which come in physical notes and coins, Bitcoin isn't printed or minted.

Instead, Bitcoin tokens are a digital-only form of payment and are created by a computer code.

Why has the Bitcoin price gone down?

The value of Bitcoin is determined by how much people are willing to exchange it for and its price has fluctuated wildly since its launch.

It's currently valued at around $43,049 - down by more than 7% over the past 24 hours, according to CoinMarketCap.

That is a long way down from last year when the currency had hit record highs of more than $67,000, helped by El Salvador making Bitcoin legal tender and regulatory approval of a Bitcoin futures ETF in the US.

Since then, it has seen regular slumps - eventually dropping to its current price.

There is no clear reason for Bitcoin's latest drop, underlining how volatile and unpredictable the cryptocurrency is.

Some analysts claim the cryptocurrency market is following the direction of shares, with stock markets dropping in the US this week amid fears that the Federal Reserve will withdraw its economic monetary support and hike interest rates.

To process Bitcoin transactions, a procedure called "mining" must take place, which involves a computer solving a difficult mathematical problem with a 64-digit solution.

For each problem solved, one block of Bitcoin is processed. In addition, the miner is rewarded with new Bitcoin.

To compensate for the growing power of computer chips, the difficulty of the puzzles is adjusted to ensure a steady stream of new Bitcoins are produced each day.

There are currently about 18.9millon Bitcoin tokens in circulation.

To receive a Bitcoin, a user must have a Bitcoin address - a string of 27-34 letters and numbers - which acts as a kind of virtual postbox.

These addresses are in turn stored in Bitcoin wallets, which are used to manage savings.

The bulk of Bitcoin "mining" is done in China, where energy costs are cheaper than in places like the UK or US.

Anyone thinking of investing in Bitcoin or any other cryptocurrency should be very careful.

Their values are incredibly unpredictable, with the ability to plummet as quickly as they shoot up.

Like with all cryptocurrencies, this means that if you choose to invest, you can lose your money if the value drops.

For example, on January 9, 2018, Bitcoin and other major currencies crashed by £120billion after major monitoring platform CoinmarketCap decided to leave out the trading prices from South Korea.

Cryptocurrencies themselves are only regulated in the UK for anti-money laundering and counter-terrorist financing.

If you decide to invest, your money won't be covered by the Financial Services Compensation Scheme (FSCS) which protects up to £85,000 of your savings if a firm goes bust.

You also won't be able to go to the Financial Ombudsman Service if something goes wrong.

Firms offering cryptoassets must now be registered with the Financial Conduct Authority (FCA) and anyone who does invest in cryptocurrencies should check before investing.

In October 2020, the FCA banned Brits from buying a "harmful" type of cryptocurrency-related investment in the UK known as an exchange traded note.

Exchange traded notes are investment products that track the price of cryptocurrencies in the same way that others track the price of gold or other investments.

Investors in these products make or lose money based on a cryptocurrency's current or future price.

But people can still continue to buy cryptocurrencies directly and invest them or use them as currency.

How do I buy Bitcoin and how can I spend it?

Several marketplaces called “Bitcoin exchanges” allow people to buy or sell Bitcoins using different currencies.

People can also send Bitcoins to each other using mobile apps or their computers in the same way people send cash digitally.

You are also able to purchase Bitcoin through an online exchange or Bitcoin ATM.

If you have invested in Bitcoin, you can set up a virtual wallet to store, keep track and spend your digital money - but very few businesses accept Bitcoin as a form of payment.

You can use the Where To Spend Bitcoin UK website to find merchants that accept the currency.