Caixin
May 22, 2021 05:39 AM
BUSINESS & TECH

China Hammers Bitcoin Anew With Warning on Miner Crackdown

Bitcoin fluctuated around $40,000 in Asian trade, down about 9% on the week though up from a Wednesday plunge toward $30,000.
Bitcoin fluctuated around $40,000 in Asian trade, down about 9% on the week though up from a Wednesday plunge toward $30,000.

(Bloomberg) — Bitcoin resumed its sell-off Friday after China reiterated a warning that it intends to crack down on cryptocurrency mining as part of an effort to control financial risks.

The largest cryptocurrency fell 5.5% to $37,615 as of 10:35 a.m. in New York. The statement late Friday after a meeting of China’s Financial Stability and Development Committee was the latest blow in a rough week for a cryptocurrency market rattled by forced selling and a possible U.S. tax clampdown.

China has long expressed displeasure with the anonymity provided by Bitcoin and other digital tokens and warned earlier in the week that financial institutions weren’t allowed to accept them for payment. China is home to a large concentration of the world’s crypto miners — programmers that use massive computing power and vast amounts of electricity to verify transactions on the blockchain.

Friday’s sell-off hit Bitcoin believers still fuming after onetime proponent Elon Musk did an about-face and criticized the token for its energy consumption. Bitcoin fluctuated around $40,000 in Asian trade, down about 9% on the week though up from a Wednesday plunge toward $30,000. Other coins have slumped too, such as Ether’s 17% nosedive during the week.

The sour stretch for digital tokens started with Tesla Inc.’s billionaire founder Musk suspending acceptance of Bitcoin payments and trading barbs on Twitter with boosters of the cryptocurrency. China’s central bank added to the downdraft Tuesday by issuing a warning against using virtual currencies. On Thursday, it emerged that the U.S. may require crypto transactions of $10,000 or more to be reported to tax authorities.

“Volatility of Bitcoin is to stay elevated,” said Ben Emons, managing director of global macro strategy at Medley Global Advisors in New York. Leverage that unwound in Wednesday’s tumble is already being replaced, he said in a note.

This week’s swings led to huge liquidations by leveraged investors and damaged the narrative that cryptocurrencies will become more stable as the sector matures. Musk’s actions showed how a few tweets can upend the entire market.

Still, over a longer time horizon tokens like Bitcoin and Ether are sitting on big gains. Over the past year, Bitcoin is up more than 300% and Ether 1,200%.

Regulatory Threat

One takeaway from the past few days is a reaffirmation of the regulatory threat to the crypto market.

“Investors are underestimating the regulatory risk of crypto as governments defend their lucrative monopolies over currency,” said Jay Hatfield, chief executive officer of Infrastructure Capital Advisors in New York. The possible imposition of transaction reporting requirements could be the “tip of the iceberg” of potential Treasury rules on virtual currencies, he said.

The Bloomberg Galaxy Crypto Index is poised for a tumble of more than 25% for the week, the most since the market turmoil that accompanied the onset of the pandemic last year.

Despite downside risks and this week’s volatility — in which Bitcoin slid about 31% and jumped roughly the same percentage Wednesday — crypto bulls are undaunted.

They are sticking to the narrative that Bitcoin offers a modern-day portfolio hedge and store of value, akin to digital bullion, and that blockchain-based financial services — so-called decentralized finance — are expanding.

“The institutional investors getting exposure to digital gold aren’t going away any time soon,” Paolo Ardoino, chief technology officer of crypto exchange Bitfinex, said Thursday in a note. “Decentralized finance will continue to grow. Developers will continue to build.”

Contact editor Bob Simison (bobsimison@caixin.com)

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