The tough words against cryptocurrencies in general and bitcoin in particular from China resulted in a drop in eth value of bitcoin and ether Since Friday.
According to Coin Metrics statistics, the price of bitcoin decreased almost 5 per cent to $42,496.12 while that of ether, the second largest digital currency, dropped by 7 per cent to $2,921.53.
This volatility in the crypto market followed a statement from the People’s Bank of China that all cryptocurrency related operations in the country would by prohibited.
Trading, order matching, and derivatives for virtual currencies are severely forbidden, according to the PBOC, and offshore exchanges are likewise to be outlawed.
This year, Beijing has stepped up its anti-crypto campaign. The Chinese government has taken steps to prohibit digital currency mining, a high energy intensive activity that confirms transactions and generates new coins.
That resulted in crypto miners taking their computers and other equipment offline causing a sharp slump in bitcoin’s processing power.
Banks and non-bank payment organisations, including the ones like Alibaba affiliate Ant Group have been prohibited by the PBOC which has asked the organizations not to provide any virtual currency services.
Authorities ordered the closure of a Beijing-based software business in July due to its participation in cryptocurrency trading. The strong tone, according to Constantine Tsavliris, head of research at crypto data site CryptoCompare, is expected to result in a “short-term sell-off as unfavourable news drives investors to take a prudent approach.”
“The recent news by China serves as an extension of previous announcements in May regarding a crackdown on cryptocurrency mining and bans on financial and payment institutions from crypto-related services,” Tsavliris said.
“As a result of the bans, we previously saw a short-term sell-off and a shift in mining away from China, followed by a swift recovery throughout July and August,” Tsavliris added.
Even though the stance taken by China on cryptocurrency is not 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 on previous occasions too, investors have been alarmed by the Securities and Exchange Commission’s recent strong stance on cryptocurrencies.
A public feud has happened between Coinbase, America’s largest cryptocurrency exchange, and the SEC. Regulators threatened to sue the firm for Lend, a programme that would have allowed customers to earn interest on their investments. Lend was just dropped by Coinbase.
“The Chinese regulators have always been extreme in their views and these comments are not new,” Ayyar said.
“They have said these things many times in the past. But the reaction is interesting purely because we are anyway in a slightly nervous environment for crypto with the recent SEC comments and overall macro environment with the Evergrande news. So any comments of this nature will cause a sell off in risky assets.”
In recent week, the market has been tormented with fears of a possible collapse of the debt ridden Chinese property developer Evergrande.
“Overall, we’ve seen this play out many times in the past, with such dips being inorganic and bought up quite quickly especially in environments where crypto is in a bull market cycle,” Ayyar said, referring to China’s crackdown. “Price action wise, as long as we don’t drop below $38,000 on a high time frame basis, we are still in bullish territory.”
(Adapted from CNBC.com)