China Continues to Take Measures Against Cryptocurrencies

In recent weeks, bitcoin and other cryptocurrencies have to deal with various challenges. They declined after China took more steps to crack down on cryptocurrencies. On Wednesday, the world’s most heavily traded cryptocurrency fell to $30,202 per coin on early Wednesday after starting the day around the $40,000 mark. It then recovered slightly but still was down 10% at around $38,700 per coin around the time of the New York stock market close.

Alongside bitcoin’s decline on Wednesday, several other major cryptocurrencies also were down. Ethereum dropped below $2,000 per unit after trading above $3,000 on May 19, before reclaiming some of its lost ground. Another cryptocurrency, Dogecoin lost more than 24% of its value.

Cryptocurrency trading platforms Coinbase, as well as Coindesk, experienced outages as a result of the selloff.

Cryptocurrencies and Chinese organizations

Bitcoin was already declining following Elon Musk’s announcement. A new announcement by a trio of Chinese finance and banking watchdogs created additional pressure on cryptocurrencies. Two days ago, the agencies said that financial institutions and payment companies should not participate in any transactions related to cryptocurrency. They also should not provide crypto-related services to their clients.

China’s position toward cryptocurrencies goes back years. In 2013, regulators declared that bitcoin was not a real currency and prohibited financial and payment institutions from transacting with it. People in China can hold or trade cryptocurrency, but major exchanges in the country have been shut down. In 2017, authorities also banned initial coin offerings.

The growing crackdown in China may also be in part to boost the country’s state-backed digital yuan initiative. Authorities are working to implement digital yuan so they can monitor the situation.

Cryptocurrencies and risk factors

The weakness is not isolated in cryptocurrencies, suggesting that the move could be a part of a larger rotation by investors away from speculative trades. Tech, as well as growth stocks, also struggled in recent weeks.

Bitcoin and other cryptocurrencies also came under increased scrutiny from regulators around the world. A harsher crackdown on cryptocurrencies is possible in many developing countries. Authorities may regard cryptocurrency as a threat to their fiat currencies and monetary policy.

In the U.S., newly appointed Securities and Exchange Commission Chair Gary Gensler expressed his opinion. Earlier this month, he stated that regulators should be “technology neutral”. He also mentioned the need for more consumer protection when it comes to crypto markets.