- On Wednesday, Bitcoin experienced a roller-coaster day, falling from $45,600 to under $40,000, then climbing back before falling to $30,017 and rising again.
- Following Elon Musk’s tweets, bitcoin has recovered much.
- Cryptocurrency mining is a highly energy-intensive method that necessitates massive quantities of electricity in massive data centers.
NEW YORK (CBSNewYork) –
Bitcoin’s value plummeted on Wednesday after China announced a new crackdown on the digital currency, but losses were mitigated after Tesla CEO Elon Musk spoke out on Twitter.
Before climbing back over $39,500 around 2000 GMT, the virtual currency dropped to nearly $30,000, less than half of its previous high. It was also higher than it had been at the beginning of the year.
Following Musk’s tweets with a diamond and hands emoji, which were interpreted as an indication that the firm had not sold off its massive bitcoin holdings as the CEO seemed to say recently, bitcoin recovered somewhat.
Credit to our Master of Coin
— Elon Musk (@elonmusk) May 19, 2021
The unit lost nearly a third of its value compared to the start of the week and more than half of its value compared to its all-time high, set only a month ago on April 14, at $64,869.78.
To make matters worse, despite China powering the majority of the world’s mining, Chinese authorities said on Wednesday that cryptocurrencies would not be used in transactions and warned investors against risky trading in them.
Trading of cryptocurrencies has been prohibited in China since 2019 in order to discourage money laundering and to prevent people from moving their money abroad.
Around 90% of global trade in the sector was conducted in the region.
“Cryptocurrency prices have skyrocketed and plummeted, and cryptocurrency trading speculation activities have rebounded,” three state-backed industry organizations said in a statement.
The price fluctuations “seriously breach people’s asset protection and disturb normal economic and financial order,” the People’s Bank of China said in a statement shared on social media.
Consumers should avoid wild speculation, according to the notice, which also stated that “losses incurred by investment transactions are borne by the consumers themselves” because Chinese law does not provide them with any insurance.
It reaffirmed that Chinese financial institutions and payment providers were prohibited from supplying customers with cryptocurrency services and crypto-based financial items.
“This is the latest chapter in China’s tightening of the crypto noose,” said Antoni Trenchev, managing partner and co-founder of London-based crypto lender Nexo.
Despite the ban, Chinese investors may still buy cryptocurrencies through illegal vendors, according to Linghao Bao, the analyst at Trivium China.
“There will always be a way to get around the rules,” he predicted.
“The aim of this order is to inform financial institutions that they need to step up their game in order to detect crypto-related transactions.”
On Wednesday, Bitcoin experienced a roller-coaster day, falling from $45,600 to under $40,000, then climbing back before falling to $30,017 and rising again.
“This appears to be a normal flash crash, but there appears to be some hesitation in getting back in,” Edward Moya, senior market analyst at OANDA, said.
– ‘I’m staying’ –
Avoiding the use of cryptocurrency, which can be moved out of the country, is “key to maintaining capital controls” in China, according to Adam Reynolds of Saxo Markets.
Bitcoin has had a rough few days, thanks in large part to Musk and Tesla.
Last week, Tesla put a halt to accepting bitcoin as payment for its electric vehicles, citing doubts about the environmental impact of cryptocurrency mining.
Then Musk seemed to imply that Tesla was preparing to sell its massive bitcoin holdings, before clarifying that no bitcoin had been sold.
Timo Emden, a crypto analyst based in Germany, told AFP that “Elon Musk started the ball rolling.”
“This shock will take some time for them to recover from.”
Cryptocurrency mining is a highly energy-intensive method that necessitates massive quantities of electricity in massive data centers.
China, which accounts for nearly 80% of the global cryptocurrency trade, uses lignite, a particularly polluting form of coal, to power some of its mining operations.
In a note, Deutsche Bank analysts wrote, “If bitcoin were a country, it would use roughly the same amount of electricity to mine each year as Switzerland does in total.”
Some Chinese fans, on the other hand, were unfazed.
“This has happened before, and it happens every year…,” said Zeng Jiajun, a trader and former tech industry employee.
“Crypto isn’t going anywhere.”
China’s fintech industry is undergoing a wide-ranging regulatory crackdown.
After being found guilty of monopolistic practices, the biggest companies, including Alibaba and Tencent, have been hit with large fines.