Bitcoin, the most prominent and best-known cryptocurrency, fell under the $40,000 mark after China’s newest restrictions that ban financial and payment institutions from providing any financial services related to cryptocurrencies. This is just another in a series of blows dealt by China, with Bitcoin on the receiving end. So, what’s the story behind the ban?
According to Reuters, China’s latest attempt to clamp down on a burgeoning digital trading market now bans financial institutions, like banks, and online payment channels, from providing services relative to cryptocurrencies. The ban further prohibits China’s financial institutions from offering any registration, trading, clearing, and settlement services involving crypto money. The country justified its actions against digital trading currencies by stating that cryptocurrency values are too volatile and unpredictable and that speculative cryptocurrency trading severely disrupts normal economic and financial order.
As such, the National Internet Finance Association of China, the China Banking Association, and the Payment and Clearing Association of China no longer recognize cryptocurrencies as legal tender, excluding them from their banking systems. However, the People’s Republic government defined Bitcoin as a virtual commodity, allowing individuals to freely participate in its online trade. In layman’s terms, the people and residents of China may freely acquire and trade with cryptocurrencies in online trade outside of the state’s financial bubble. However, the holders can’t exchange any cryptocurrencies for the Chinese Yuan or any other legal tender, making it difficult to buy, mine, and exchange the crypto for actual paper bills.
This struck a severe blow to the digital trading market, affecting all cryptocurrencies at once, with Bitcoin taking the most brutal hit – its value plummeted by more than 27% in less than 24 hours. Truth be told, Bitcoin was already under pressure with Elon Musk’s reversal on Tesla accepting Bitcoin as payment, which dropped the Bitcoin’s value by approximately 15%. But the latest announcement from China was akin to adding insult to injury. Bitcoin saw a record high of $64,895 on April 14th, but the newest market crackdowns led to an overall fall to $30,689 on May 19th (at 15:00 CEST) – losing Bitcoin more than 52% of its value over 35 days. Luckily, the market recuperated a bit, and Bitcoin’s value now sits at $38,014 at the time of writing.
Some cryptowatchers perceive this turn of events as a beginning of an end for high-value cryptocurrencies. The fall of Bitcoin caused ripples through the market, significantly affecting other cryptocurrencies, like Ether and Dogecoin, with more losses forecasted ahead. Bitcoin’s fall below the $40,000 mark triggered more selling, causing a widespread deleveraging, as more and more investors exit cryptocurrency trading for gold, which saw a 6% increase in value this month alone.
Did we mention that China has the world’s largest gold production? As if China’s actions weren’t to protect its economy from the unpredictable value volatility of Bitcoin and other cryptocurrencies, but to show us just how unpredictable they actually are. The fact that cryptocurrencies plummet while gold value rises has nothing to do with China’s actions and the country being the world’s largest producer of gold. Or does it?