Bitcoin falls further as China cracks down on crypto-currencies

Bitcoin falls further as China cracks down on crypto-currencies

I ended a piece in which I compared the cryptocurrency with 17th-Century Dutch tulips or London houses in the 1980s with this thought: “Unless and until Bitcoin can be used to buy a sandwich, or be accepted by your friends when you pay them back for a restaurant meal, then it is likely to remain just a playground for geeks and gamblers.”

Bitcoin plunges below $40,000 as China widens its crypto crackdown

Hong Kong (CNN Business) Bitcoin and other cryptocurrencies are plunging as anxiety spreads through the market — this time, after China took more steps to crack down on the digital coins .

The world’s most heavily traded cryptocurrency plunged as low as $30,202 per coin early Wednesday after starting the day around the $40,000 mark, according to data from Coindesk

Alongside bitcoin’s fall Wednesday, several other major cryptos also were down. Ethereum plummeted below $2,000 per unit after trading above $3,000 on Tuesday, before reclaiming some of its lost ground.Ether was down around 22% at nearly $2,600 Wednesday afternoon. The meme-turned-cryptocurrency dogecoin lost more than 24% of its value.

Tesla TSLA Bitcoin was already dropping this month afterCEO Elon Musk said he was wary of its environmental impact. But a new announcement from a trio of Chinese finance and banking watchdogs appears to have shocked cryptocurrency markets even more.

The agencies said Tuesday that financial institutions and payment companies should not participate in any transactions related to cryptocurrency, nor should they provide crypto-related services to their clients.

“Prices of cryptocurrency have skyrocketed and plummeted recently, and speculative trading has bounced back. This seriously harms the safety of people’s property and disturbs normal economic and financial orders,” said the statement from regulators supervised by the People’s Bank of China and the China Insurance and Banking Commission.

China’s chilly stance toward cryptocurrency goes back years. While the country doesn’t completely ban cryptos, regulators in 2013 declared that bitcoin was not a real currency and forbade financial and payment institutions from transacting with it. At the time, they cited the risk that bitcoin could be used for money laundering, as well as the need to “maintain financial stability” and “protect the yuan’s status as a fiat currency.”

Members of the public can hold or trade cryptocurrencies, but major exchanges in mainland China have been shut down. Authorities in 2017 also banned initial coin offerings, a way for tech startups to raise money by issuing crypto tokens to the public.

The growing crackdown may also be in part to boost China’s state-backed digital yuan initiative , which authorities are working to implement so it can keep money flows under its strict oversight.

While the 2013 notice mentioned only bitcoin by name, some observers have taken it to apply to all cryptos given Beijing’s distaste for the currencies. The state-owned China Times on Wednesday described the latest announcement as a “risk warning in nature.” While not a national law or regulation, it represents an “industry standard to some extent,” the outlet wrote, citing Zhu Youping, an official from the State Information Center, a policymaking think tank.

Still, it shows that China isn’t changing its tack on crypto anytime soon — and that seemed to be enough to worry traders.

“The Chinese position on cryptocurrencies is clear from the beginning: trading and usage of cryptocurrencies are simply forbidden,” wrote Ipek Ozkardeskaya, senior analyst at Swissquote, in a Wednesday research note. “Therefore, the news is nothing ‘new’, but given that crypto traders are too sensitive to negative news nowadays, it adds to the downside pressure on cryptocurrencies.”

Even before the latest announcement from China, Tesla’s Musk had already sent crypto markets on a wild ride.

He flip-flopped last week on a plan to allow his electric carmaker to start accepting bitcoin as payment for its cars, by suspending the program and citing sustainability concerns around the mining of bitcoin. The cryptocurrency then fell 12%. It kept dropping into the start of this week after Musk appeared to suggest that his automaker may have dumped its holdings of the digital currency, though he later clarified that it hadn’t.

Dogecoin, meanwhile, tumbled earlier this month after Musk — the coin’s most prominent supporter — joked about it on “Saturday Night Live.”

Even so, the two cryptos are still astronomically higher than they were a year ago. Bitcoin is up more than 30% in the year to date, according to Coindesk, while Ethereum and Dogecoin have rallied more than 255% and more than 7,500%, respectively.

—Anneken Tappe contributed to this report.

The crypto collapse: Here’s what’s behind bitcoin’s sudden drop

In this article TSLA

The dramatic pullback in bitcoin and other cryptocurrencies comes as a flurry of negative headlines and catalysts, from Tesla CEO Elon Musk to a new round of regulations by the Chinese government, have hit an asset sector that has been characterized by extreme volatility since it was created. The flagship cryptocurrency fell to more than three-month lows on Wednesday, dropping to about $30,000 at one point for a pullback of more than 30% and continuing a week of selling in the crypto space. Ether, the main coin for the Ethereum blockchain network, was also down sharply and broke below $2,000 at one point, a more than 40% drop in less than 24 hours.

The recent slide is a reversal from the dramatic rise that started in the second half of last year. The price of bitcoin is still up more than 200% since September, the product of a dramatic bull rally sparked in part by hedge fund managers, banks and other companies appearing to embrace cryptocurrency. “A lot more people own crypto. Crypto has seeped into pockets all over our society and you had a confluence of events – a combination of Tax Day, Elon Musk tweets, whatnot, where you started breaking down the positivity in the price action, and now we’ve got a liquidation event,” longtime bitcoin bull Mike Novogratz said Wednesday on CNBC’s “Squawk Box.”

Institutional support retreats

Part of the reason for bitcoin’s weakness seems to be at least a temporary reversal in the theory of broader acceptance for cryptocurrency. Earlier this year, Musk announced he was buying more than $1 billion of it for his automaker’s balance sheet. Several payments firms announced they were upgrading their capabilities for more crypto actions, and major Wall Street banks began working on crypto trading teams for their clients. Coinbase, a cryptocurrency exchange company, went public through a direct listing in mid-April.

However, Musk announced last week that Tesla would no longer accept bitcoin as payment, citing environmental concerns. He did suggest on Wednesday that Tesla is not selling its existing bitcoin holding, using emojis on Twitter to say the company has “diamond hands.” And Coinbase, which surged above $400 shortly after its first trade on April 14, quickly gave up those gains and was down near $220 per share on Wednesday morning. Its direct listing date is also the day of bitcoin’s most-recent all-time high. Additionally, a new report from JPMorgan said that, based on futures contracts, institutional investors appeared to be moving away from bitcoin and back to gold. Bitcoin is often touted as a potential replacement for the traditional metal as a store of value.

A risk-off trade?

The weakness is not isolated in crypto, suggesting that the moves could be part of a larger rotation by investors away from more speculative trades. Tech and growth stocks, many of which outperformed the broader market dramatically during the coronavirus pandemic, have also struggled in recent weeks. The Ark Innovation ETF, a fund of high-growth stocks led by star fund manager Cathie Wood, is down more than 30% from its February highs. As of Wednesday morning, the tech-heavy Nasdaq Composite has fallen 6.9% from its most recent closing high on April 26. The small cap Russell 2000 is down 5.6% over the same period. The declines have also coincided with the delayed deadline for tax payments, which could have caused selling pressure as investors looked for cash to pay off capital gains tax liabilities.

Regulatory concerns

Bitcoin and related assets have also come under increased scrutiny from regulators around the world as they have grown into a bigger part of the financial markets. “We believe government crackdown on cryptocurrencies can trigger another ‘crypto winter’ and reduced trading activity. Harsher crackdown on crypto is possible in many developing countries which may view crypto as a threat to their fiat currencies and monetary system,” Bernstein’s Harshita Rawat said in a note Tuesday. China, which is developing its own government-run cryptocurrency, reasserted its rules against other digital currencies on Tuesday, banning financial companies from providing services for crypto trading. In the U.S., newly appointed Securities and Exchange Commission Chair Gary Gensler said earlier this month that he thought regulators should be “technology neutral” but more consumer protection is needed in crypto markets.