Beijing: After China stated that it would not allow cryptocurrency trading and warned investors not to engage in speculative trading, on Wednesday, Bitcoin fell below $40,000 for the first time in more than three months.
These comments caused the stock to dive by more than 10%, and it soon took a hit after being hit by comments from tycoon Elon Musk and his Tesla Motors.
Since 2019, in order to prevent money laundering, Chinese leaders have banned cryptocurrency transactions in China as leaders try to prevent people from transferring cash overseas. This country accounts for approximately 90% of global trade in this sector.
And in a statement, three state-backed industry associations — the National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China — said “cryptocurrency prices have skyrocketed and plummeted, and cryptocurrency trading speculation activities have rebounded”.
The price fluctuations “seriously violate people’s asset safety and disrupt normal economic and financial order”, said the statement, which was posted to social media by the People’s Bank of China.
The notice warned consumers against wild speculation, adding that the “losses caused by investment transactions are borne by the consumers themselves”, since Chinese law offers no protection to them.
It reiterated that providing cryptocurrency services to customers and crypto-based financial products was illegal for Chinese financial institutions and payment providers.
Bitcoin tumbled Wednesday from $45,600 to $39,240, its lowest since early February, and well off the record high of $64,870 seen as recently as last month. Analysts have warned it could go down as far as $30,000.
“This is the latest chapter of China tightening the noose around crypto,” Antoni Trenchev, managing partner and co-founder of London-based crypto lender Nexo, said.
And Adam Reynolds, of Saxo Markets, added: “It’s no surprise to me, as Chinese capital controls can be challenged by cryptocurrency purchases in the country and transfers out of the country.
“So avoiding use of them in the country is essential to maintaining capital controls.”
Bitcoin has experienced a few days of suffering. Earlier this week, after Musk seemed to suggest that Tesla planned to sell its huge stake, the stock took a heavy blow. Just a few days ago, the electric car giant stated that it would stop using it in transactions due to environmental considerations.
China is in the midst of extensive regulatory repression in its fintech sector, and its largest players (including Alibaba and Tencent) have been heavily fined for being found guilty of monopolistic behavior.
The central bank is also trying to promote its own strictly controlled digital renminbi, which is currently being tested in a national pilot program.
Consumers have widely used mobile payments and online payments, but the digital renminbi can allow the central bank (rather than the big technology giants) to have greater data and control over payments.