Bitcoin and other cryptocurrencies are plummeting as market uncertainty spreads – this time, following China’s latest crackdown on digital currency.
According to Coindesk, a news and information website specialising in crypto assets, the world’s most widely traded cryptocurrency fell 10% on Wednesday to trade at $40,728 a coin. Bitcoin hasn’t been this low since February. It also indicates a 36 percent reduction from a high of $63,347 in April.
Bitcoin was already on the decline earlier this month when Tesla (TSLA) CEO Elon Musk expressed concern about the cryptocurrency’s environmental impact. However, a fresh declaration from a group of Chinese financial and banking regulators appears to have stunned cryptocurrency markets even more.
The agencies stated on Tuesday that financial institutions and payment providers should not engage in bitcoin transactions or provide cryptocurrency-related services to its customers.
“Cryptocurrency prices have recently risen and fallen, and speculative trading has recovered. This endangers people’s property’s safety and disrupts normal economic and financial systems “regulators controlled by the People’s Bank of China and the China Insurance and Banking Commission stated in a statement.
China’s scepticism of Bitcoin dates back many years. While the country does not outright ban cryptos, regulators proclaimed bitcoin to be a fake currency in 2013 and prohibited financial and payment institutions from trading with it. They cited the possibility of bitcoin being used for money laundering, as well as the necessity to “keep financial stability” and “defend the yuan’s position as a fiat currency” at the time.
Cryptocurrencies can be held or traded by the general public, although major exchanges in mainland China have been shut down. In 2017, authorities outlawed initial coin offerings, a method for software businesses to acquire funds by selling crypto tokens to the general public.
The tightening of controls could be in part to support China’s state-backed digital yuan plan, which authorities are seeking to implement so that money transfers can be closely monitored.
Despite the fact that the 2013 warning only referenced bitcoin by name, some observers have interpreted it to cover all cryptos, given Beijing’s dislike for them. The newest notice was labelled as a “danger warning in nature” by the state-owned China Times on Wednesday. While not a national rule or regulation, it does constitute a “industry norm to some extent,” according to the source, which cited Zhu Youping, a policymaking think tank official.
Still, it suggests that China’s stance on cryptocurrency isn’t likely to change anytime soon, which seemed to be enough to scare traders.
Several other big cryptos were also down on Wednesday, in addition to bitcoin. Ethereum has dropped 14% and is now trading at $2,978, down 31% from its recent high. Dogecoin, a meme-turned-cryptocurrency, is down 13%.
In a research note published on Wednesday, Ipek Ozkardeskaya, senior analyst at Swissquote, said, “The Chinese attitude on cryptocurrencies is clear from the start: trade and usage of cryptocurrencies is simply illegal.” “Thus, while the news isn’t ‘new,’ it adds to the bearish pressure on cryptocurrencies because crypto traders are too sensitive to negative news nowadays.”
Tesla’s Musk had already put crypto markets on a wild ride before China’s newest statement.
Last week, he reversed course on a plan to allow his electric car company to accept bitcoin as payment for its vehicles, delaying the programme due to concerns about bitcoin mining’s long-term viability. Following then, the cryptocurrency dropped by 12%. It continued to fall at the start of this week after Musk appeared to hint that his automaker had sold its bitcoin holdings, though he later stressed that this was not the case.
Meanwhile, Dogecoin’s value plummeted earlier this month after Elon Musk, the coin’s most vocal proponent, made a joke about it on “Saturday Night Live.”
However, the two cryptos are still trading at astronomical levels compared to a year ago. According to Coinbase, bitcoin has increased by 323 percent in the last year, while dogecoin has increased by 670 percent.