As Bitcoin prices continue to decline, we try to understand what is leading to this plunge?
Since Friday to until the time of writing this article, nearly $300 billion has been wiped off from the cryptocurrency industry. According to CoinDesk data, Bitcoin plunged around 6.6% at $32,735.71 at around 10:47 p.m. ET on Tuesday, coming off its 24-hour low of $31,179.05. The value of the cryptocurrency has tanked by about 50% now since touching a record high above $63,000 in April.
Why This Happened?
This fall comes after a Global Times report said that many Bitcoin mines in Sichuan were shuttered on Sunday, following authorities in the southwestern Chinese province ordering a halt to crypto mining. The paper added that more than 90% of China’s Bitcoin mining capacity is estimated to be shut down. In another news, the People’s Bank of China on Monday said that it had urged Alipay and some major banks to clamp down on crypto trading.
China & Cryptocurrencies
China has been clamping down on cryptocurrencies for a while. Earlier in 2017, China told exchanges to stop trading in cryptocurrencies and banned initial coin offerings (ICOs). The government also banned financial institutions and payment service providers from getting involve in crypto trades even tangentially, such as opening a bank account for those who engage in them.
China has also moved to discourage Bitcoin mining amid concerns over its massive energy consumption. The country relies on a particularly polluting type of coal, lignite, to power some of its mining and Bloomberg predicted that it will not be able to meet its cryptocurrency industry’s needs via renewable energy till 2060.
At present, Chinese officials haven’t given any reason why the country is restricting cryptocurrencies, but it could be because it doesn’t want to give up the control of its financial system. Cryptocurrencies also offer a way to move money out of China, potentially adding to outflows. Also, it is difficult to track digital currencies, which makes it difficult for the country’s central bank to regulate them. So, there could be a number of reasons why China is going hard on cryptocurrencies, and we might see more of these restrictions in the future, which may lead to further dip in crypto prices.
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