Bitcoin dominance rises as altcoins crash over China crypto crackdown
Bitcoin dominance over other cryptocurrencies has risen back up to 45% after the weekend carnage that saw another US$400 billion wiped off crypto’s total market cap.
Crypto traders awoke to a bloodbath on Monday morning, with most altcoins having shed 20% to 30% of their value over the weekend. By comparison, the industry’s main players Bitcoin and Ethereum were down 7% and 10% respectively, demonstrating where the crypto faithful look for safety — relatively speaking, if an asset that can shrink by 7 to 10% overnight can be considered a safe harbor — in times of crisis.
While altcoins are now making impressive recoveries, Bitcoin’s dominance — at 45% — is once again nearing half the overall crypto market cap, according to Coinmarketcap.
The latest crypto sell-off, which initially began when Elon Musk suddenly declared that Tesla would no longer accept Bitcoin as payment due to environmental concerns, was spurred on by the news that Huobi, a major cryptocurrency exchange in Asia, reportedly will now scale back some of its offerings due to China’s increasingly hard-line stance against crypto trading and mining.
“When it rains, it pours. Bad news continues to flow in and weigh on crypto markets.” said Justin d’Anethan, sales manager at Equos crypto exchange, in an interview with Forkast.News. “Over the week, Huobi reportedly will stop hosting Chinese miners. OKEx and Huobi might also be putting restrictions on Chinese customers.”
Despite both Bitcoin and Ethereum losing half their value since posting all-time highs less than a month ago, the largest and second-largest cryptocurrencies are experiencing less volatility compared to the smaller altcoins.
“Those are a lot of reasons for investors to be uncertain and look for safety,” d’Anethan added. “For some, that means cash, for others, that means BTC. Alts are clearly underperforming with the BTC Dominance rising to 46%, coming up from 39% just earlier last week).”
Meme traders panic
Indications that tougher crypto regulations could be coming to the U.S. very soon as well as news of the DeFi100 hack that saw investors lose around US$32 million proved too much for the growing number of meme-investors, and panic ensued.
“Cryptocurrency prices are driving down by collective efforts,” said Toya Zhang, chief operating officer of AAX crypto exchange, in an interview with Forkast.News. “It started from the meme coin frenzy which in essence repeated the 2017 ICO (initial coin offering) hype — people looking for huge returns by investing a small amount of money in tokens with no intrinsic value.”
Zhang added that with the hype around meme coins, the real “sharks were ready to take profits” and the crypto downturn was already imminent.
“It is unhealthy for the crypto space, and once again proved that the market needs proper guidance and regulation to protect investors from chasing the bubble and to protect the healthy cryptos from being demonized,” Zhang said. “The speculative trading activities caught China’s attention and they have started to crackdown, again.“
Despite the Bitcoin price being slashed by over 22% over the last seven days, longer-term crypto investors might take comfort in knowing that as of today, May 24, BTC prices still grew over 300% since the same date last year.
China crypto mining crackdown a net positive?
While many in the industry fail to see China’s crackdown on Bitcoin mining as anything but bad news for the industry, Henri Arslanian, PwC’s global crypto leader, told Forkast.News that it could have long-term positive effects.
“The news from China is quite important, especially when it comes to Bitcoin mining.” Arslanian said. “65% of Bitcoin mining globally takes place in China. And it will be very interesting to watch over the next couple of months, with the latest announcements made by the Chinese government, whether this proportion will change.”
Arslanian believes that China’s Bitcoin mining crackdown could be a “net positive” over in the United States and that there is a lot of good news coming from the U.S. currently that should give the crypto industry confidence.
“For the last couple of months, we’ve had not only great positives on a policy side, on the regulatory side, and also, frankly, on the commercial side — but the U.S. also has a pretty interesting ecosystem for Bitcoin mining,” Arslanian said. “I’ll be interested to see if any of that mining migrates from China to the U.S. [That] can really solidify the U.S.’s role as a potential leading crypto hub.”
Bitcoin is currently trading at US$36,344 at the time of publication and BTC’s market cap now makes up 45.7% of the total US$1.44 trillion crypto market capitalization.
China crackdown forces crypto mining operators to end operations
After Friday’s crackdown, several firms said they are looking to move their business overseas, especially North America.
Cryptocurrency mining operators, including Huobi Mall and BTC.TOP, are suspending their China operations after Beijing stepped up its efforts to crack down on Bitcoin mining and trading, sending the digital currency tumbling.
A State Council committee led by Vice Premier Liu He announced the efforts late on Friday – the first time the council has targeted virtual currency mining, a big business in China that accounts for as much as 70 percent of the world’s crypto supply.
Crypto miners use increasingly powerful, specially-designed computer equipment, or rigs, to verify virtual coin transactions in a process that produces newly minted cryptocurrencies such as Bitcoin.
Bitcoin took a hammering after the latest Chinese move and is now down nearly 50 percent from its all-time high. It shed as much as 17 percent on Sunday, before paring some losses and was last trading steady in Asia.
Investor protection and prevention of money laundering are particular concerns of governments and financial regulators who are grappling with whether and how they should regulate the cryptocurrency industry.
US Federal Reserve Chairman Jerome Powell turned up the heat on cryptocurrencies last week, saying on Thursday that they pose risks to financial stability and indicating that greater regulation may be warranted.
A shift to overseas
Huobi Mall, part of cryptocurrency exchange Huobi, said in a statement late on Sunday that all its custody businesses have been suspended.
“Meanwhile, we’re contacting overseas service providers, to pave way for exports of mining rigs in the future,” Huobi Mall said via its official Telegram community, and asked clients “not to worry and calm down”.
BTC.TOP, a crypto mining pool, also announced the suspension of its China business, citing regulatory risks.
Founder Jiang Zhuoer said in a microblog post via Weibo that in the future, BTC.TOP will mainly conduct crypto mining business in North America.
“In the long term, nearly all of Chinese crypto mining rigs will be sold overseas, as Chinese regulators crack down on mining at home,” he wrote.
China has already lost its position as a global cryptocurrency trading centre after Beijing banned crypto exchanges in 2017.
“Eventually, China will lose crypto computing power to foreign markets as well,” Jiang said, predicting the rise of US and European mining pools.
HashCow, another crypto miner that owns 10 mining sites in Chinese provinces including Xinjiang and Sichuan and sells computing power to investors, said it will fully comply with government regulations.
In a statement to clients, HashCow said it will suspend buying new Bitcoin rigs, and promised a full refund to those investors who had placed orders for computing powers but had not yet started mining.
Risk-adjusted returns
Aside from the sheer scale of the slump in virtual currencies last week – the Bloomberg Galaxy Crypto Index fell almost 40 percent, the most since the pandemic turmoil in March last year – significant intraday price swings have also captivated investor attention.
Still, RBC derivatives strategist Amy Wu Silverman argued in a note Sunday that, based on a measure of risk-adjusted returns known as the Sharpe ratio, Bitcoin has done better than shares in Tesla Inc., the SPDR S&P 500 ETF Trust or Invesco QQQ Trust Series 1.
Bitcoin, Ether and meme virtual currencies like Dogecoin are still sitting on major gains over longer time-frames, such as the past year – about 12,000 percent in the case of Dogecoin.
For Ben Emons, managing director of global macro strategy at Medley Global Advisors in New York, Bitcoin is “firming its grip on markets through volatility, liquidity and correlation”.
Musk says he supports crypto in battle with fiat money
A representation of virtual currency Bitcoin and U.S. One Dollar banknotes are seen in front of a stock graph in this illustration taken January 8, 2021. REUTERS/Dado Ruvic/File Photo
(This May 22 story corrects paragraph six to make clear Musk called “dogecoin” a hustle, not bitcoin)
Tesla Inc (TSLA.O) Chief Executive Officer Elon Musk tweeted on Saturday that in a battle between fiat and cryptocurrencies, his support is with crypto.
“The true battle is between fiat & crypto. On balance, I support the latter,” he said on Twitter in reply to a user who asked him what his thoughts were about people who were angry at him because of crypto.
Musk has previously compared bitcoin to fiat money and often tweets about cryptocurrencies that have sent values for bitcoin and the meme digital currency dogecoin up and down.
In February, bitcoin shot higher after Tesla revealed it had bought $1.5 billion of the cryptocurrency and would soon accept it as a form of payment for cars. read more
However, bitcoin slumped after the billionaire announced in May that Tesla would no longer accept bitcoin for car purchases, citing long-brewing environmental concerns for a swift reversal in the company’s position on the cryptocurrency. read more
Earlier this month, he also called dogecoin a “hustle” during his guest-host spot on the “Saturday Night Live” comedy sketch TV show, leading prices to tumble. read more
Two days ago, Musk assured that he has not sold any of his dogecoin holdings and will not sell any. https://bit.ly/3hLz6LN
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