Bitcoin’s nosedive below $30,000 on Tuesday may signal a period of major volatility in the coming weeks, setting the stage for further declines in the cryptocurrency. After the plunge, chart watchers said that Bitcoin now may have a difficult time finding support in the $20,000 range after failing to return to its $40,00 level last week. The market’s increasingly skeptical outlook regarding Bitcoin is a major setback for the digital currency, which had soared in the past year.
China’s crackdown on cryptocurrency trading and mining was the major force that fueled the downward spiral in Bitcoin, illustrating China’s dramatically increasing role in cryptocurrencies. Bitcoin dropped yesterday to below $30,000 for the first time since January, and it staged a modest recovery to just under $34,000 as of 7:45am EDT on Wednesday.
The price of a single Bitcoin was $29,333 on Jan. 1 of this year. It gathered momentum as the year progressed and sailed past its 2017 high to a new record above $63,000 by mid-April. The currency was gaining widespread attention and upbeat assessments from respected executives and companies in the investing community.
However, the stage was set in May for a series of price declines by a tweet from billionaire and Tesla Inc. (TSLA) Chief Executive Officer (CEO) Elon Musk. Musk criticized the currency, noting Bitcoin’s massive use of energy, and said the currency could no longer be used to purchase Tesla vehicles. Those declines culminated in this week’s low. While precipitous swings are not uncommon in Bitcoin’s price trajectory, the latest crash is important because it erased the cryptocurrency’s substantial gains for the year.
- Bitcoin price fell below $30,000 this week, wiping out this year’s major gains for crypto investors.
- China’s crackdown on crypto trading and mining are seen as the major catalysts for Bitcoin’s decline.
- The latest price crash may signal more volatility and declines ahead.
China’s Crypto Crackdown
According to reports, the cause for the cryptocurrency’s latest price crash is the crackdown on cryptocurrency mining and trading by China, the world’s second-largest economy behind the U.S. The country plays an important role in the Bitcoin ecosystem.
Even as global criticism and crackdowns against Bitcoin have multiplied, China has emerged as a haven and hub for cryptocurrency. Based on estimates, it accounted for 65% of total global mining capacity. Bitcoin mining has thrived in select regions of the country, such as Inner Mongolia and Sichuan province, due to the plentiful availability of cheap and renewable sources of energy. Despite a government-imposed ban, Chinese citizens have been reported to be prolific traders of cryptocurrencies, using it to circumvent capital controls imposed by the government.
But the Chinese government hardened its stance against cryptocurrency this year after launching its own digital currency. For starters, it cracked down on mining facilities. The Global Times, a Chinese state-backed outlet, reported last Friday that authorities ordered a shutdown of crypto miners in the Sichuan province: “The ban…means that more than 90% of China’s Bitcoin mining capacity is estimated to be shut down, at least for the short term, as regulators in other key mining hubs in China’s north and southwest regions have taken similar harsh steps,” the online publication stated.
The Chinese government’s attempt to reconfigure the map for cryptocurrency mining is accompanied by a crackdown on crypto trading and accounts. The People’s Bank of China sent notices to major e-commerce players and financial institutions on Monday that detailed guidelines to curb risk tied to Bitcoin trading accounts. The instructions include cutting off the ability to send or receive money for transactions for cryptocurrency accounts. The central bank also warned financial institutions about the economic and financial stability created by virtual currencies.
Signs of Growing Price Pressure
China’s crackdown is the latest in a growing list of concerns for crypto investors that are bursting the latest bubble in Bitcoin prices. In April, when Bitcoin set a new price record, the cryptocurrency seemed unassailable amid Tesla’s $1.5 billion investment in Bitcoin, and record investment numbers in funds that held the digital currency.
Less than two months later, things have changed dramatically. Bitcoin price has been crushed. Tesla CEO Musk is a designated villain for hammering crypto prices with a single tweet. And Securities and Exchange Commission (SEC) Chairman Gary Gensler has delayed Bitcoin ETF decisions and warned of gaps in regulation at crypto exchanges.
Previous bubbles in Bitcoin price have resulted in corrections that spanned long periods, ranging from several months to years. But some investors are holding out hope for the long term, including Matthew Sigel, head of digital assets research at VanEck, which has filed for a Bitcoin ETF. Despite the short-term turmoil, Sigel is optimistic and says that the long-term trend is the gradual adoption of cryptocurrencies by investors and financial institution.