China Bans Financial Institutions From Participating in Crypto Services

China Bans Financial Institutions From Participating in Crypto Services

Bloomberg

(Bloomberg) – Bitcoin and other major cryptocurrencies slumped after the People’s Bank of China conveyed a statement reiterating that digital tokens can’t be used as a form of payment.The largest token fell below $40,000 for the first time since early February, dropping as much as 10% to $38,973 on Wednesday and continuing a weeklong slide sparked by Elon Musk’s back-and-forth comments on Tesla Inc.’s holdings of the coin. Ether, Dogecoin and last week’s sensation, Internet Computer, also retreated.“This is the latest chapter of China tightening the noose around crypto,” said Antoni Trenchev, managing partner and co-founder of Nexo in London, a crypto lender.Virtual currencies should not and cannot be used in the market because they’re not real currencies, according to a notice posted on the PBOC’s official WeChat account. Financial and payments institutions are not allowed to price products or services with virtual currency, the notice said.The statement doesn’t have any new regulatory steps, according to Yu Lingqu, a vice director at the China Development Institute think-tank in Shenzhen. The notice was conveyed by the central bank but compiled by industry associations rather than government officials, making it less powerful, according to Liu Yang, a lawyer at Beijing-based law firm DeHeng Law Offices.“They just want caution,” said Bobby Lee, founder and chief executive officer of crypto storage provider Ballet. “They feel the market is over-hyped, there’s speculative trading, they’re looking out for the best interests of the people.”Beijing since 2017 has abolished initial coin offerings and clamped down on virtual currency trading within its borders, forcing many exchanges overseas. The country was once home to about 90% of trades but the lion’s share of mining and major players have since fled abroad.China has recently taken steps to issue its own digital yuan, seeking to replace cash and maintain control over a payments landscape that has become increasingly dominated by technology companies not regulated like banks.“It’s no surprise to me, as Chinese capital controls can be challenged by cryptocurrency purchases in the country and transfers out of the country,” said Adam Reynolds, CEO for APAC at Saxo Markets. “So avoiding use of them in the country is essential to maintaining capital controls. The only tolerable digital currency to a government with strong capital controls is their own CBDC.”Many chartists and technical analysts are looking at Bitcoin’s 14-day Relative Strength Index (RSI), which entered oversold levels Tuesday, as well as the 200-day moving average around $39,800. Breaching the 200-DMA could mean it drops to $30,000, where it’s previously found support.Read more: Bitcoin Chartists See Rout Worsening With $40,000 in FocusFor Stephane Ouellette, chief executive and co-founder of FRNT Financial, the moves have more to do with Musk’s recent tweets about Bitcoin.“TSLA’s entrance into the space saw some of the most aggressive BTC buying I’ve personally ever seen – and it has to unwind,” Ouellette said. The EV-maker’s retraction that it will accept Bitcoin as payment “was the catalyst that accelerated the spread consolidation. Then over the weekend, little comments here and there have continued to confuse,” he said.Meanwhile, the latest Bank of America fund manager survey showed that “Long Bitcoin” is the most crowded trade in the world right now. The poll captures 194 fund managers with $592 billion worth of assets under management overall.“When an asset becomes the most crowded trade in the BofA survey, it has frequently signaled a near-term pullback in the past,” said Matt Maley, chief market strategist for Miller Tabak + Co. “When you combine this with the news out of China, it’s not a surprise that Bitcoin is seeing some more weakness.”(Updates markets starting in second paragraph.)More stories like this are available on bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.

Bitcoin stumbles after China crypto warning

Financial and payments institutions are not allowed to price products or services with virtual currency, the note said.

Since 2017, Beijing has abolished initial coin offerings and clamped down on virtual currency trading within its borders, forcing many exchanges overseas. The country was once home to about 90 per cent of trades but the lion’s share of mining and major players have since fled abroad.

China has recently taken steps to issue its own digital yuan, seeking to replace cash and maintain control over a payments landscape that has become increasingly dominated by technology companies not regulated like banks.

“It’s no surprise to me, as Chinese capital controls can be challenged by cryptocurrency purchases in the country and transfers out of the country,” said Adam Reynolds, chief executive for Asia-Pacific at Saxo Markets.

“So avoiding use of them in the country is essential to maintaining capital controls. The only tolerable digital currency to a government with strong capital controls is their own [central bank digital currency].”

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Many chartists and technical analysts are looking at bitcoin’s 14-day relative strength index, which entered oversold levels on Tuesday. In addition, an acceleration in its sell-off could mean the coin approaches its next support, around $US40,000.

A fall to that level would mark the first time since September that bitcoin would test its average price over the past 200 days. And breaching it could mean it drops to $US30,000, where it’s previously found support.

For Stephane Ouellette, chief executive and co-founder of FRNT Financial, the moves have more to do with Musk’s recent tweets about bitcoin.

“It’s just a bit of a mess. [Tesla’s] entrance into the space saw some of the most aggressive [bitcoin] buying I’ve ever seen - and it has to unwind,” he said.

Tesla’s retraction that it will accept bitcoin as payment “was the catalyst that accelerated the spread consolidation. Then over the weekend, little comments here and there have continued to confuse”.

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Meanwhile, the latest Bank of America fund manager survey showed that “long bitcoin” is the most crowded trade in the world right now. The poll captures 194 fund managers with $US592 billion ($760 billion) of assets under management.

”The fact that the … survey shows that the long bitcoin trade is the most crowded one on the Street right now isn’t helping either,” said Matt Maley, chief market strategist for Miller Tabak + Co.

“When an asset becomes the most crowded trade … it has frequently signalled a near-term pull-back in the past. When you combine this with the news out of China, it’s not a surprise that bitcoin is seeing some more weakness.”

Bloomberg

A greener approach to crypto mining

The future of digital payments and climate stewardship intersect in Christina Lake, a small British Columbia border town that’s a good six hours east of Vancouver.

A former lumber facility has morphed into a silver-metallic hub filled with wires, fans and computers — looking more like Star Trek’s Borg cube than a lab. It’s in rooms like these where cryptocurrency comes to life, but at a high demand for energy.

“There is this cloud hanging over how crypto came to be that has bad publicity, from the Silk Road and other bad things that put it in a negative light,” Sheldon Bennett, the CEO of DMG Blockchain Solutions. “You have that and the power usage coming together and people aren’t sure if crypto is good or bad.”

Bennett, one of the leaders of the Christina Lake facility, insists crypto mining can be done efficiently. DMG just joined the Crypto Climate Accord , a network of businesses that are pushing to decarbonize cryptocurrency by using carbon offsets and alternative energy sources. The CCA , which did not return a request for comment, has about four dozen members including Ripple, Consensys and the XRP Ledger Foundation.

A defunct lumber mill in British Columbia now houses DMG Blockchain’s hydro-powered bitcoin mining facility.

The CCA has set a goal of reaching net-zero greenhouse gas emissions by 2040, net-zero emissions from electricity consumption by 2030, and to develop standards and technology to support 100% renewably-powered blockchains by 2025.

“If you can get companies thinking about these issues before deploying new capital for crypto projects, you have a start,” Bennett said.

Cryptocurrency mining’s use of energy has long been a concern, with reports of strained electrical grids in locations ranging from Washington state to China . In Europe , regulators have used bitcoin mining’s energy use as part of the argument to create central bank digital currencies as an alternative.

As cryptocurrency gains the support of large payment companies , the environmental impact of mining is becoming a larger issue. Tesla CEO Elon Musk, who helped spark this spring’s crypto bull market when he announced Tesla would accept bitcoin for payments, recently backed away from the pledge, citing environmental concerns. Musk then Tweeted a chart from the University of Cambridge showing the skyrocketing use of energy in bitcoin mining over the past year.

Bitcoin mining uses a lot of energy because of the computing scale involved. The computers that mine bitcoin and other cryptocurrencies solve digital puzzles that are designed to ensure bitcoin transactions aren’t fraudulent. If their work is successful, the miners receive an award that’s dispensed in bitcoin. It’s an arduous process that could result in the miner getting little or no bitcoin. Additionally, a lot of the energy spent doesn’t result in bitcoin or crypto production.

As a consequence, the energy volume for bitcoin alone is comparable to the entire energy usage of countries like Argentina, Norway or Sweden .

“There’s a disconnect between people who think ‘if I can’t touch it and feel it I don’t care,’ and those who are concerned about energy use,” Bennett said. “Some people value the economic gain of bitcoin and some don’t. And there are those in between.”

DMG’s approach to energy includes its location — it’s on the site of a defunct lumber facility, and uses water-generated electricity instead of coal or natural gas. Bennett says the power line feeding the town (which has a population of little over 1,000) has a 250 megawatt capacity, and the town uses about 30 megawatts.

“What we look for is an opportunity to use hydro and an underutilized power source,” Bennett. “We’re not in the center of Chicago mining crypto.” BC Hydro, the utility that serves Christina Lake, did not return a request for comment.

DMG also seeks partners that are working toward fossil fuel reduction through their own usage of technology. “You can look for opportunities where there’s something missing that can reduce fossil fuels or increase renewables,” Bennett said.

Other firms are issuing cryptocurrency via green energy. Candela Coin just launched a currency that allows holders to transfer solar energy using the Candela Coin as a medium of exchange. Solar-panel owners can sell excess solar energy to neighbors in their community via the coin, obtaining clean energy without purchasing a solar panel. The Washington, D.C.-based Candela has also built a mobile app that acts as a solar marketplace for Candela Coin transactions, and an IoT meter to measure energy.

While blockchains have been used to decentralize energy and support carbon offsets, Candela Coin is trying to provide a single experience to buy, sell and store a cryptocoin tied to energy. Emission-reduction pledges and organizations could bring carbon emissions down for cryptocurrency mining, said Candela CEO Avi Verdugo, adding the overall attention on the environmental impact as cryptocurrencies increase in value and add use cases would hopefully make the launch of his coin well-timed, citing Musk’s reversal on bitcoin payments.

“And hopefully this will encourage people to use their solar panels,” he said.