Bitcoin crashes as China cracks down on cryptocurrency

The price of Bitcoin as well as other cryptocurrencies slid down even further this week after China announced they will start cracking down on the cryptocurrency market by further regulating cryptocurrency mining and trading, with the aim of limiting so-called associated risks.

China’s Financial Stability and Development committee, chaired by one of China’s Vice Premiers, Liu He, determined Bitcoin as one of the assets which needs to be better regulated.

Since reaching its all-time high price of $65,000 USD in mid-April, Bitcoin’s price has crashed by nearly 45%. It fell by 28% this past week alone, mainly due to the Chinese crackdown.

China’s new effort mainly focuses on restricting banks and financial companies in providing services related to cryptocurrency. The main purpose of these new regulations is to protect cryptocurrency traders, especially first timers, by reducing the risks associated with cryptocurrency speculation as well as exterminating the scams prevalent in the world of virtual currency. China also wants to limit the use of cryptocurrency as the main means of illegal transactions including drug, weapons, etc. 

Vice Premier Liu He, one of China’s most senior official, is one of the most outspoken supporter of strong Bitcoin regulation. This is the first time the Chinese government have explicitly targeted the mining of cryptocurrency.

“It’s hard to read into the real impact of potential action by China, as these statements are being made without specifics,” voiced John Wu, president of Ava Labs, an open-source platform for financial applications.

“That said, this statement does show the clear risk for bitcoin mining being so reliant on China, and the wills of its government,” he continued.

The CCP government also recommended cryptocurrency exchanges in Hong Kong to be licensed by a market regulator and only permitted to offer their services to professional investors and traders.

Last Friday, China’s state television channel CCTV also reminded traders of the “systemic risks” of cryptocurrency trading. Cryptocurrency has a negative image in the Chinese government, as light regulation and anonymity means it is the main token used in the black market, money laundering, weapons and arms dealing, illegal gambling, and the illicit drug trade.

“Bitcoin can no longer be considered a low-risk investment, but instead an instrument of speculation,” CCTV further commented.

The price of Bitcoin’s long-term crypto rival, Ethereum, also fell by 15% to $2,339 USD as the entire cryptocurrency market plummeted.

“China has tried so often to tackle bitcoin, exchanges, and mining since 2013 that I don’t think this should come as a surprise anymore,” said Ruud Feltkamp, chief executive officer at crypto trading bot Cryptohopper.

“I would be surprised if it is going to have a substantial long-term effect on bitcoin,” he added.

This new crusade by China against cryptocurrency came on the back of the US Treasury Department calling for a new regulation where large cryptocurrency transactions must be reported to the Internal Revenue Service. The US Federal Reserve also raised concerns on how cryptocurrency risks destabilizing traditional banking and finance.