Top Line
In further evidence of the extreme volatility in emerging markets, cryptocurrency prices plummeted Friday morning after China's central bank reiterated its blanket ban on digital asset trading. Some experts warned that the harsh remarks could encourage more countries to take similar measures, while others noted that prices have recovered quickly from similar announcements in the past.
The plunge erased nearly all of the gains since Monday's sell-off triggered a sharp drop in the cryptocurrency market. … [+]
Key Facts
The value of global cryptocurrencies plummeted to a low of about $1.8 trillion by 7:15 a.m. EDT on Friday, down about 9% within just three hours of China's announcement and wiping $188 billion from their market capitalization, according to cryptocurrency data website CoinMarketCap.
The plunge wiped out almost all of the crypto market's gains since Monday's global stock sell-off triggered its worst drop in weeks, with major cryptocurrencies Bitcoin, Ethereum and Solana's Sol each falling between 6% and 10% on Friday morning.
Vital Knowledge Media analyst Adam Crisafulli wrote in a note on Friday that China's announcement is “very consistent with past statements,” but cautioned investors against buying at current prices as Beijing's measures are likely to be adopted by other countries amid hesitancy on cryptocurrencies from major economies such as India.
Meanwhile, Freddie Williams of digital asset broker GlobalBloc said he had “not seen much of a knee-jerk reaction from clients” following the ban, adding that markets could recover once temporary fears subside, as they did after Monday’s drop.
Williams further noted that China has imposed multiple so-called bitcoin bans over the past few years, most recently in May, but that has still not prevented U.S. institutions in particular from ramping up cryptocurrency adoption at an astounding pace.
Mike Novogratz, a cryptocurrency investor who is a Bitcoin bull, also twitterHe said that while the world's largest cryptocurrency may continue to struggle to break through the $45,000 mark again, “the secular narrative is as strong as ever.”
Main Background
Beginning in late 2017, an initial wave of tightening regulations led to a roughly 80% collapse in cryptocurrency prices and a years-long bear market. At the time, many countries, including South Korea, began cracking down on initial coin offerings, a then-burgeoning crowdfunding method to raise funds by issuing new cryptocurrencies. That same year, China announced a total ban on cryptocurrency trading, barring financial institutions from providing trading, settlement, and insurance services directly or indirectly to cryptocurrency operators. The measures were reiterated in Friday's government announcement. Authorities also reissued the regulations in May, warning that more rules would be introduced in the future. China introduced its first major regulatory measures against cryptocurrencies in 2013, when it recognized Bitcoin as a virtual asset but banned it as a means of exchange.
tangent
Bitcoin and the overall cryptocurrency market surged during the pandemic on inflation fears and a surge in institutional adoption, but prices put an end to a year-long rally in April when Tesla, one of Bitcoin's largest corporate investors, sold most of its shares and said it wouldn't buy more until bitcoin mining became less energy-intensive. Since then, the market has largely failed to recover amid tightening Chinese regulations, and the global cryptocurrency value remains about 30% below its May 12 peak of about $2.6 trillion.
Chief Reviewer
“China's authoritarian crackdown on cryptocurrencies, including bitcoin, presents a major opportunity for the United States,” Sen. Pat Toomey (R-Pennsylvania), one of the lawmakers who introduced a bill to ease cryptocurrency regulations in the United States, said on Friday. twitter“It is also a reminder of our significant structural advantages vis-à-vis China,” he added.
References
China's central bank declares all cryptocurrency transactions illegal (Forbes)
Evergrande's turmoil hits Bitcoin, Ethereum and other major cryptocurrencies, causing the crypto market to suddenly lose $250 billion in value (Forbes)
China cracks down on cryptocurrency businesses, claims “speculative” trading “seriously violates” financial order (Forbes)
