An announcement from regulators in China that cryptocurrency payments would be banned led to a severe crash in the price of Bitcoin and other digital coins on Wednesday. The country’s central bank, the People’s Bank of China, said institutions should not accept cryptocurrencies as payment or offer services and products related to them. Three state-backed organisations – the National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China – said consumers would have no protection if they lost from cryptocurrency investment transactions.
Although the digital coin cannot be traded in China, more than 75 per cent of Bitcoin mining is done in China.
Following China’s new stance, the price of Bitcoin crashed as much as 30 per cent to a low of $30,101, before clawing back its losses to less than 8 per cent. Other digital coins were also hit by heavy selling, including Ethereum, one of the best-performing cryptocurrencies in the past month.
Last week crypto enthusiast Elon Musk said his company Tesla would no longer accept Bitcoin as payment for its electric cars, also raising worries about the long-term future of the asset class. The billionaire investor had in March unexpectedly announced that Tesla would accept payments in Bitcoin. In a tweet on Wednesday, Musk indicated Tesla was holding Bitcoin for the long term.
Enthusiasts and technology entrepreneurs have termed the latest decline as a short-term correction. “A nearly 40 per cent dip in the bitcoin price from its all-time high looks dramatic but is normal in many volatile markets, including crypto, especially after such a large rally,” The Indian Express quoted Avinash Shekhar, Co-CEO of ZebPay, an India-based crypto exchange, as saying. “Such corrections are mainly due to short-term traders taking profits. Long-term value investors might call these lower prices a buying opportunity.”
“We go through soul-searching times like this and scrape the models and, yes, our convictions is just as high,” Cathie Wood, founder of Ark Invest, a fund-manager that has invested in cryptocurrency-related companies, told Bloomberg News.