Bitcoin (BTCUSD) and other major cryptocurrencies fell sharply Friday morning as Chinese officials maintained their harsh stance against the asset class. According to coinmarketcap.com, the price of bitcoin decreased by up to 10% in three hours to $40,983. Ethereum (ETHUSD) became entangled in Bitcoin’s slipstream and fell 12% to $2,747.34 within the same time period. During that period, cryptocurrency markets plummeted from a market value of $2 trillion to $1.8 trillion, a 10% drop.
The markets are rebounding as of this writing. At 16:45 UTC, Bitcoin was worth $42,184.24 and Ethereum was at $2,894.59. The cryptocurrency markets had a combined market capitalization of $1.89 trillion.
- The price of bitcoin fell Friday morning as Chinese officials reinforced their harsh stance against cryptocurrency operations such as trading and mining.
- The warnings issued today provide further details to the Chinese government’s attempts to control cryptocurrency operations, including the formation of a “joint working system” involving local, state, and central agencies to detect such activity.
- Some believe the announcements are an effort by the government to “ratchet up rhetoric” ahead of the debut of a digital currency supported by the central bank.
China Roils Cryptocurrency Markets
Cryptocurrency markets plummeted in reaction to Chinese government criticism. They prohibited financial institutions and payment providers from offering bitcoin services to customers in May. The notification issued today reiterates the prohibition and provides new information about the steps authorities are taking to enhance their crypto crackdown. 1
The People’s Bank of China said in a Q&A on its website that virtual currencies have no legal standing in China. It further declared that trading, order matching, token issuance, and virtual currency derivatives were illegal.
In 2017, China prohibited cryptocurrency exchanges. The notification issued today said that employees of overseas-based exchanges resident in China will be investigated for “knowingly engaging” in the cryptocurrency sector. The country’s law enforcement agencies have been instructed to “severely” clamp down on crypto-facilitated money laundering and gambling.
The authorities also tried to reduce “hype” in cryptocurrency prices by restricting cryptocurrency-related content and building a “joint working mechanism” across multiple government agencies to exchange information and respond quickly to dangers from virtual currency trade. The method envisions the creation of an early warning system that involves local governments monitoring trading accounts online.
The nation’s National Development Reform Council (NDRC) recently issued a warning tightening the clampdown on cryptocurrency mining inside the country. The government agency put itself in charge of a crypto mining crackdown in its notification. It requested that state and municipal governments identify mining rigs under their authority and expedite their closure or departure from the nation. Electricity suppliers have been urged to avoid exploiting the national grid to serve crypto miners. Mining companies were also forbidden from participating in power trading markets and might face price increases from suppliers. 2
A Mixed Blessing
China’s most recent crackdown on cryptocurrencies is part of the country’s ongoing campaign against the asset class over the last several years. For the nation, cryptocurrencies have proven to be a mixed blessing. Some of the world’s largest cryptocurrency exchanges were originally situated in China, and they accounted for 90% of all bitcoin transactions. 3 The nation was also a crypto-mining hotspot due to a slew of mining-friendly legislation and incentives.
However, in 2017, the government started cracking down on monetary market speculation, resulting in increased scrutiny and a consequent prohibition on crypto-related activity such as initial coin offerings and cryptocurrency trading. Cryptocurrencies have also been blamed for the country’s capital flight in 2019. 4 Even as it continues to obstruct bitcoin trade and mining, China has co-opted cryptocurrency technology to create a digital version of its own money.
The current series of remarks represents a “continuation of a (prior) pattern,” according to Jason Guthrie, head of digital assets at asset management company WisdomTree. “… they are ramping up rhetoric ahead of the debut of a digital renminbi,” he told the Financial Times. 5
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