Are we in grip of ‘crypto winter?’

Market panic as inflation stalks global economy

THE global digital currency market went into meltdown yesterday as fears of a ‘crypto winter’ sent investors into a panic – with the value of some assets falling by as much as 99 per cent.

Bitcoin, the original cryptocurrency, has lost nearly a third of its value so far this year, while Ethereum, the world’s second most valuable digital coin, is down more than 40 per cent.

Other crypto assets have suffered even worse falls, with Luna – another large digital currency – plummeting by more than 99 per cent in a single day.

The global cryptocurrency market has lost nearly £330billion since the start of this week.

Regulators repeatedly warned investors of the risks of putting cash into cryptocurrencies, with the Financial Conduct Authority saying this week that people should be ‘prepared to lose all the money’ they invested.

Many ignored the warnings, and were lured by the promise of high returns. It was estimated earlier this year nearly ten million Britons owned some form of cryptocurrency. They face a ‘rude awakening’, analysts have said.

Susannah Streeter, from investment firm Hargreaves Lansdown, said: ‘Fears about rampant inflation and the abrupt ending of the era of cheap money have sent cryptocurrencies careering down a cliff edge.’

Cryptocurrencies are a form of digital money to be invested in. They soared in value during the pandemic as low interest rates encouraged investors to buy riskier assets. But investors have started fleeing the market with fears over the global economy, inflation and rising interest rates.

The crash in the price of Luna wiped out the fortunes and savings of multiple crypto investors.

It is now changing hands for less than $1 (80p) from more than $80 (£65) a week ago.

The pound crashed to a two-year low and shares tumbled amid mounting fears sky-high inflation will tip Britain into recession.

As bleak figures showed the economy contracted in March – before a sharp rise in energy bills and taxes in April – sterling fell as low as $1.2166.

That was the lowest level since May 2020, during the depths of the first Covid lockdown. Shares were also on the slide, with the FTSe100 down 1.6pc, or 114.32 points, to 7233.34 as £30bn was wiped off the value of the blue-chip index.

Panic also tore through crypto-currency markets as soaring inflation, rising interest rates and the war in Ukraine cast a shadow over the global economy.

Victoria Scholar, head of investment at Interactive Investor, added: ‘March’s monthly data provides the first indication of economic contraction in the UK, raising concerns that a recession is looming.’

The Office for National Statistics said output fell 0.1pc in March. That brought growth for the first quarter of 2022 to just 0.8pc, missing expectations of 1pc and propped up by January’s performance. Despite the slump, a senior Bank of england official warned that interest rates will have to rise further to bring inflation back under control.

The Bank has already raised rates to a 13-year high of 1pc. But with inflation set to top 10pc – five times the 2pc target – deputy governor Dave Ramsden said: ‘I don’t think we’ve gone far enough yet.’

It is feared, however, that higher borrowing costs will further slow a fragile economy already reeling from an inflation shock.

Mortgage holders and other borrowers already feeling the squeeze from rising prices will also see the cost of their debt jump. Analysts warned of worse to come following a sharp rise in energy bills in April and Chancellor Rishi Sunak’s hike in National Insurance. ed Monk, at investment management group Fidelity International, said: ‘Ihe UK faces a serious fight to avoid recession this year.’

The Bank of england has been hiking rates since last December, in an effort to cool red-hot inflation. In theory, higher rates should help keep a lid on prices by encouraging households to save rather than spend. But they also have the effect of dampening activity, threatening to throw the Covid recovery into reverse.

The Bank has been trying to toe a fine line, hoping to keep inflation under control without slowing the economy down too much.

But with inflation expected to hit 40-year highs, it has been spurred into more drastic action.

Charles Goodhart, a former member of the rate-setting Monetary Policy Committee (MPC), told Parliament’s Treasury committee this week that officials would probably have to lift rates at each meeting in the immediate future.

he admitted that this would be likely to push the economy into a recession, but that getting inflation under control was key.