What is Ethereum and why is the price going down?


THE price of Ethereum is down after a crash wiped more than one trillion dollars from crypto markets.

But what exactly is Ethereum and why is it going down in value? We explain what you need to know.

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Ethereum is the second largest cryptocurrency

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Ethereum is the second largest cryptocurrencyCredit: Reuters

But first, a word of warning: buying cryptocurrencies as well as stocks and shares is a very risky business.

Investing is not a guaranteed way to make money, so make sure you know the risks and can afford to lose the cash.

Cryptocurrencies are highly volatile, so your cash can go down as well as up in the blink of an eye – you can lose all the money you put in.

So while Ethereum and other cryptocurrencies have been rising this year, they can easily tumble – as we have seen.

Plus, some products and cryptocurrency services are very complex to understand. You should only invest in things you understand. 

There’s also no guarantee that you’ll be able to convert cryptoassests back into cash, as it may depend on the demand and supply in the existing market. 

Fees and charges may also be higher than with regulated investment products. 

We know that crypto firms may also overstate the returns or understate the risks. Be careful. 

Ethereum is trading at $2,573.92 at the time of writing on Friday morning, according to coinmarketcap.

That’s down around 5% in the last 24 hours and around 3% over the past week.

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Ethereum hit an all time high of $4,362.95 on May 12, but the cryptocurrency has now fallen by around 40% since then.

What is Ethereum?

Ethereum is a cryptocurrency that was released in 2015. It’s the second largest after Bitcoin.

In fact, some experts believe it has the potential to one day overtake Bitcoin as the dominant coin in the market.

5 risks of crypto investments

THE Financial Conduct Authority (FCA) has warned people about the risks of investing in cryptocurrencies.

  • Consumer protection: Some investments advertising high returns based on cryptoassets may not be subject to regulation beyond anti-money laundering requirements. 
  • Price volatility: Significant price volatility in cryptoassets, combined with the inherent difficulties of valuing cryptoassets reliably, places consumers at a high risk of losses.
  • Product complexity: The complexity of some products and services relating to cryptoassets can make it hard for consumers to understand the risks. There is no guarantee that cryptoassets can be converted back into cash. Converting a cryptoasset back to cash depends on demand and supply existing in the market. 
  • Charges and fees: Consumers should consider the impact of fees and charges on their investment which may be more than those for regulated investment products.  
  • Marketing materials: Firms may overstate the returns of products or understate the risks involved.

It was founded by eight people, one of which is 27-year-old cryptocurrency “celebrity” Vitalik Buterin.

He recently became the world’s youngest crypto billionaire as Ethereum soared in value.

Ethereum is also a ledger technology – using “blockchain”, like Bitcoin – that companies are using to build new programmes.

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A blockchain is where encrypted data can be transferred securely, making it nearly impossible to duplicate or counterfeit.

This ledger is the foundation of any cryptocurrency transaction.

The cryptocurrency allows people to trade currency or assets digitally outside of any government or bank.

Why is it going down?

Ethereum has rocketed in value over the course of this year.

It hit an all time high on May 12 after a wave of interest across crypto which pushed up many digital coin prices this year.

The surge to a record high of $4,362.95 meant ethereum rocketed by more than 2,000% since last year.

The price of Ethereum is currently $2,573.92 at the time of writing on Friday morning, according to coinmarketcap.

Cryptocurrencies across the board crashed last week after a crackdown by China was announced and billionaire entrepreneur Elon Musk raised concerns over the environmental impact of Bitcoin mining.

The plunge follows a startling rise for Ethereum as investors bet that ether will be of increasing use in a decentralised future financial system.

James Quinn, managing director at Q9 Capital, a Hong Kong cryptocurrency private wealth manager, said Ethereum’s rise over the year was also down to a number of other factors.

These include improvements made to the ethereum blockchain, and a growing shift towards “DeFi”, or decentralised finance, which refers to transactions outside traditional banking for which the ethereum blockchain is a crucial platform.

Brits are being warned they risk losing all of their money if they invest in bitcoin and other cryptocurrencies.

It comes after a ban on some crypto-related investment products.

From Dogecoin and Litecoin to Bitcoin – here are the different cryptocurrencies explained.

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