This past week saw the tumble of bitcoin to below the $34,000 mark for the first time in months, after The People’s Bank of China imposed harsh restrictions on crypto trading and warned investors against speculative trading.
Crypto-giant, bitcoin had for some time, already been under pressure following a string of tweets from Elon Musk (around the reversal of Tesla accepting the currency as payment), but the news from China sent it plummeting again for a 9 percent fall. The currency has tumbled nearly 40 percent from a record high of $64,027 in April and heading toward its first monthly decline since November 2018.
Beijing has banned all Chinese banks and financial services companies from providing any assistance in virtual currencies. This week three of the state-backed *banking organizations issued a precautionary statement on social media, indicating their concern for consumers who will now no longer have protection against losses from crypto-investment transactions. They said that the recent erratic fluctuations in crypto-currency prices would seriously violate people’s asset safety, which is disrupting the “normal economic and financial order”.
China has always had a somewhat complicated relationship with crypto trading. In 2019, the country placed an initial ban on several coin trading mechanisms, which was reported as a precaution to curb money laundering.
These measures were, in actual fact, put in place to bolster the country’s own digital yuan – although this may have helped spark a broad selloff for digital assets. The Chinese government claimed that there had been a directive to state officials to conduct an ‘orderly removal’ of bitcoin miners from their territories.
While China is attempting to wean its currency off crypto trading, it still exerts a significant influence on wider cryptocurrency prices. It has become evident that they do, in fact, wield a great influence on bitcoin prices on their exchanges, because before the ban, China accounted for 90 percent of the trading volumes in cryptocurrencies, with exchanges thriving on charging low fees.
As the world saw China’s economic growth rate decelerate, returns from state-backed investments also started to dwindle. Bobby Lee, founder of the BTC China Exchange, said the Chinese don’t care about the political aspects of Bitcoin. “What they care about is income – can bitcoin make me money now?”
Affluent Chinese citizens now are reportedly moving away from crypto trading, and have started hunting for investment opportunities abroad to begin exchanging local currency for US Dollars. A displeased Government, in turn, started to institute capital controls to prevent the outflow of yuan, which saw a subsequent, and significant, drop in its value.
Bitcoin fell more than 10 percent last week after Tesla said it would no longer accept the currency. In turn, they also saw their shares fall more than 3 percent on Wall Street this week – probably also as a result of their exposure to the cybercash.
While analysts claim that despite Chinese representation of as much as 75 percent on all bitcoin mining, the government is clearly averse to condoning bitcoin’s rise in popularity as a medium of exchange. Instead, they are punting their own digital currency which they intend to evolve into the primary unit of account in their local economy going forward.
Boris Schlossberg, managing director at BK Asset Management, has indicated that the digital yuan, (being both programmable and trackable), gives the Chinese government enormous control over the economy. He said it would allow Chinese policymakers to have insight into every consumer choice, giving them the power to directly affect spending behavior by making the currency able to expire at a certain date.
The BBC this week published in an article, a quote from Neil Wilson of Markets.com who said, “China has for some time been putting pressure on the crypto space, but this marks an intensification – and other countries might follow now, as central banks make strides towards their own digital currencies. Until now, Western regulators have been pretty relaxed about Bitcoin, but this might change soon.”
*Banking organizations: (National Internet Finance Association of China, China Banking Association, and the Payment and Clearing Association of China)