Ethereum joins crypto plunge: Second largest digital currency loses 20% of its value in 24 hours

The price of Ethereum, the second-largest digital coin, has plummeted 20 per cent in the last day during a major crash of the cryptocurrency market.

Cryptocurrencies have sharply declined in value during the past few days amid fears of downturns across financial markets with highly-valued US tech stocks down sharply too including Amazon, which has fallen 30 per cent in a month.

Having traded as high as £1984.76 yesterday, Ethereum’s price has now hit £1425.60 – losing more than 20 per cent of its value in just a day.

The crash is affecting many digital coins with Bitcoin, the most-famous cryptocurrency, losing 11.24% of its value to now sell for £21,910.97 – after hitting an all-time high of £56,330 just six months ago.

Unlike crashes of recent years, this latest plunge seems to be linked to a slowdown in traditional markets. 

Nearly all of the value of Terra (LUNA), a stablecoin, was wiped out overnight with suicide hotlines pinned to the currency’s Reddit page as a result of the 98 per cent drop.

LUNA was once in the top-10 values for cryptocurrencies just months ago.

Stablecoins are supposedly less volatile cryptocurrencies which are pegged to real-world currencies such as the dollar – but UST (the stablecoin behind LUNA) lost its peg to the dollar on Tuesday and has crashed as a result.

The NASDAQ experienced its sharpest one-day fall since June 2020 earlier this week and the crypto hit implies an increasing integration between crypto and traditional markets.

The crypto downturn has wiped more than $1.5trillion of value from the markets but investors will still be hoping that prices will be able to rally as they have done in the past.

The amount of business done by crypto exchanges, which hold the ‘blockchain’ ledgers that record transactions, is also dropping heavily.

Financial analysts predict a ‘crypto winter’ for the likes of Bitcoin and Ethereum.

A perfect storm of circumstances, not least a looming fall in tech stocks that many fear will turn into a historic crash, has led to predictions that we are about to see another repetition of the fate of the dotcom boom.

And cryptocurrencies are slap bang in the firing line — along with a spin-off fad for digital art, known as NFTs, or non-fungible tokens.

Despite previous rallies, analysts fear that the ‘party may be over’ for crypto. 

Rising interest rates around the world are a major part of crypto’s problem. The pandemic was a golden time for cryptocurrencies, as central banks pushed interest rates down to record levels to boost economies.

This low propelled investors to look for assets that provided a healthy rate of return and many inevitably targeted Bitcoin and its rivals, dubbed altcoin.

Now that interest rates are rising, investors can make better returns buying global government bonds — which are less risky than crypto.

The downturn has led to Coinbase, an online trading platform, issuing a stark warning to customers: Your crypto is at risk if the exchange goes bankrupt.

According to Coinbase’s official website, the company has more than 98 million verified users. It is the largest cryptocurrency exchange platform in the United States.    

Coinbase’s CEO Brian Armstrong attempted to calm shareholders in a series of tweets one of which read: ‘Your funds are safe at Coinbase, just as they’ve always been.’

Despite Armstrong’s claims, in an SEC filing the company referred to customers as ‘unsecured creditors’ in the event that Coinbase went belly-up.

This means that customers’ crypto assets would be considered the property of Coinbase by bankruptcy administrators.  

The SEC filing, Staff Accounting Bulleting 121, requires crypto platforms to include customer’s crypto holdings as assets and liabilities on balance sheets.  

Armstrong wrote on Twitter that the company is at ‘no risk of bankruptcy’ despite the filing, which he said was made so that company would be in compliance with SEC regulations.