Bitcoin and ether fell on Friday, as traders were frightened by China strong language. According to Coin Metrics, the price of bitcoin plummeted roughly 6% to $42,124.73. Ether, the second most valuable digital currency, fell 8% to $2,894.36.
It follows the People’s Bank of China’s declaration that all crypto-related operations are unlawful in a Q&A. Trading, order matching, and derivatives for virtual currencies are outlawed, according to the PBOC, and foreign exchanges are likewise prohibited.
Beijing’s stance against cryptocurrency
This year, Beijing has taken a hard stance against cryptocurrency. The Chinese government has taken steps to eliminate digital currency mining, an energy-intensive process that validates transactions and generates new coins. As miners turned off their equipment, the processing power of bitcoin plummeted.
The PBOC has prohibited banks and non-bank payment organisations, including Alibaba affiliate Ant Group, from providing virtual currency services. Authorities ordered a Beijing-based software company to close down in July due to its involvement in cryptocurrency trading.
The strong rhetoric, according to Constantine Tsavliris, head of research at crypto data site CryptoCompare, expects to result in a “short-term sell-off as negative news encourages investors to take a cautious approach.” ”
Tsavliris told CNBC that China’s newest announcement “serves as an extension of previous announcements in May addressing a crackdown on cryptocurrency mining and restrictions on financial and payment institutions from providing crypto-related services.”
“We previously observed a short-term sell-off and a movement in mining away from China as a result of the prohibitions, followed by a quick recovery throughout July and August,” he continued.
While China has a stance on crypto not being new, it is enough to put pressure on the market, according to Vijay Ayyar, head of Asia Pacific at digital currency exchange Luno. He noted that the US Securities and Exchange Commission’s recent stricter stance on cryptocurrencies has already alarmed investors.
Coinbase’s tussle with SEC
Coinbase, America’s largest cryptocurrency exchange, recently had a public battle with the Securities and Exchange Commission. Regulators threatened to sue the corporation over the Lend programme, which would have allowed consumers to earn interest on their investments. Lend was just dropped by Coinbase.
“The China regulators have long had radical views, and these remarks are nothing new,” Ayyar told CNBC. “They’ve said these things before, and they’ve said them many times. However, the reaction is noteworthy since we are already in a bit jittery crypto environment. As a result of recent SEC statements and the overall macro situation as a result of the Evergrande news. As a result, any comments like this will prompt a sell-off in hazardous assets.”
Fears of a possible collapse for troubled Chinese property giant Evergrande have roiled global markets recently.
“Overall, we’ve seen this play out many times before, with such falls being artificial and soon scooped up. Especially in circumstances when crypto is in a bull market cycle”. Ayyar said, referring to China’s crackdown. “We are still in the optimistic area in terms of price movement as long as we don’t drop below $38,000 on a high time frame basis.”