It has been a rough few days for the cryptocurrency market, as China stepped up efforts to crackdown on crypto mining and trading.
As a result, most of the leading currencies have seen their value tumble.
Bitcoin fell 17% yesterday, leaving it down nearly 50% from the year's high after another sell off.
Speaking on Morning Ireland, Anne Hayden, lecturer in cryptocurrencies at the Institute of Investing and Financial Trading, said a series of negative remarks have also put a huge dent in confidence.
"From Elon Musk saying Tesla would no longer accept Bitcoin for its cars because of the effect on the environment, to the US Treasury announcing moves to tighten regulations and tax compliance on cryptocurrencies," she said.
The Bank of England's Andrew Bailey also warned investors to be prepared to lose all their money, saying that these currencies have no intrinsic value.
What are cryptocurrencies?
A cryptocurrency is a digital currency that is not tangible.
It takes the virtual form of a coin that you store in a digital wallet on your PC, as Ms Hayden explained.
"They exist on a distributed and decentralised ledger known as the blockchain.
"Transactions are peer to peer, with no bank.
"They are unregulated by any third party - the regulation is the encrypted and irrefutable verification of the blockchain that miners add the ledgers to," Ms Hayden said.
There are 4,000 cryptocurrencies, with Bitcoin the biggest and most well-know.
"I think of them as commodities linked to the underlying blockchait technology," said Ms Hayden.
Is there a way to trade safely?
Many people have been investing in cryptocurrencies for the first time during the pandemic, with the largest demographic those under the age of 35.
However, Ms Hayden said the only way to invest or trade safely, is to only invest what you are prepared to lose.
She said she would also suggest examining the other cryptocurrencies, not just Bitcoin.
"The volatility we see comes from the fact that they are only still emerging as a new asset class but the technology behind crypto is incredible and here to stay," she said.
Ms Hayden said she believes younger people have a better grasp on blockchain technology.
"They see Elon Musk as an icon, a role model, and any young trader you ask will tell you that Elon's Twitter account is the only trading tool they use," she said.
These markets move principally on who is saying what, as Ms Hayden explained.
"When Elon Musk cited environmental concerns, this had a huge negative impact.
"Tesla are green - they make electric cars- so they have a difficult balance to strike between backing crypto and advocating climate protection," she said.
What is crypto mining and why is it bad for the environment?
Mining is the process of decryption that a very powerful computer (ASIC) does to verify the most recent transactions and assemble them in order onto a block (a ledger) to put onto the block chain.
Ms Hayden explained that the other users verify that the ledger is correct and the miner earns a reward of 12.5 bitcoin.
"Thousands of miners are competing all the time to crack the code, producing new blocks roughly every ten minutes," she said.
The environmental impact of mining is really coming to the fore with China and Musk highlighting it, as MS Hayden explained.
"Ten minutes on an ASIC mining a block uses about 400mw of electricity- $11,000 in Ireland, China $ 3000, Venezuela $550, France $8000, US $4500.
"In 2020, 70 terawatt hours of energy usage from mining equated to the annual output of seven nuclear plants," she said.
What happens if more companies stop accepting cryptocurrencies?
Those environmental concerns are the reason Tesla CEO Elon Musk decided to no longer accept Bitcoin for car purchases and other companies may follow suit.
Ms Hayden said there are quite a few luxury car dealers in the US who accept it, and eleven real estate agencies in New York alone that accept it.
"If any follow suit this will spell trouble," said Ms Hayden.
"The Tesla announcement was catastrophic for sentiment given that they only okayed Bitcoin in February then reneged - we will have to wait and see if any follow suit," she said.
However, Ms Hayden said it is important to note that Tesla, who bought $1 billion of bitcoin in January, still hold 90% of their holding and Elon Musk tweeted that they will continue to hold.
Why is China cracking down on mining and trading?
Last Friday China cracked down on mining and trading of the largest cryptocurrency as part of ongoing efforts to prevent speculative and financial risks.
China's Financial Stability and Development Committee, chaired by Vice Premier Liu He, singled out bitcoin as the asset it needs to regulate more.
The statement, which came days after three Chinese industry bodies tightened a ban on banks and payment companies providing crypto-related services, was a sharp escalation of the country's push to stamp out speculation and fraud in virtual currencies.
China's latest campaign against crypto came after the US Treasury Department last week called for new rules that would require large cryptocurrency transfers to be reported to the Internal Revenue Service, and the Federal Reserve flagged the risks cryptocurrencies posed to financial stability.
