Bitcoin breaks below $30.000 for the first time since January as a result of China Crypto clampdown

Cryptocurrencies were broadly higher on Wednesday morning, recovering from a sell-off that saw bitcoin plunge below $30,000 (£21,495) and lose all gains made in 2021 amid regulatory action in China.

Bitcoin (BTC-USD) ticked up 3.4% to trade at $33,941 ($24,286). Ethereum (ETH-USD) – the second biggest crypto by market cap – was up 3.3% and was trading at $2,004. Joke token dogecoin (DOGE-USD) surged about 8%, and was trading at $0.22.

Just yesterday, we have seen Bitcoin reaching $29k for the first time since January. There was a lot of panic in the market with traders worrying about the cryptocurrency’s price levels reaching four figures.

ARK Next Generation ETF

While many traders were panic-selling yesterday, Cathie Wood bought 1 .046.002 shares of Grayscale Bitcoin trust in the ARK Next Generation Internet ETF, a position worth roughly 12 million dollars.

“The bounce back in the bitcoin price is seen a welcoming sign by many crypto traders although we are no way close to be out of the woods yet,” he said, adding that institutional investors remain interested in the blockchain industry.

“The recent drop in the value of bitcoin may be an opportunity for investors to purchase the asset at bargain prices, increasing the number of players in the crypto industry.”

China Crypto Clampdown

The world’s most popular cryptocurrencies took it on the chin Monday after the Chinese government continued its regulatory crackdown on bitcoin miners and companies that provide payment services for crypto-related transactions.

The People’s Bank of China said in a notice Monday that “virtual currency trading activities disrupt the normal economic and financial orders, breed the risks of illegal cross-border transfer of assets, money laundering and other illegal and criminal activities, and seriously infringe the people’s property safety.”

The central bank’s statement came a day after the regional Chinese government in Sichuan announced it would close more than two dozen suspected cryptocurrency-mining operations in the hydroelectricity-rich region.

Crypto-mining in China fuels nearly 80% of the world’s cryptocurrency trade. With this ban, the government ends about 90% of the Bitcoin mining capacity in the country.

The Chinese government’s restrictions against cryptocurrencies began last May when it prohibited all financial entities in the country from carrying out transactions with digital currencies.

Analysts point out that all these measures are likely related to China’s intention of launching its own official cryptocurrency, with which it can control transactions and prevent capital flight, investment and tax collection.

Hash rate collapses

Market participants were shocked by the further crypto crackdown in China since the country hosts more than 60% of the world’s crypto miners.

Many bitcoin miners were shuttered during the weekend after Chinese authorities ordered a halt to crypto mining, shutting down more than 90% of the country’s bitcoin mining capacity.

As a result, the “hash rate” of the bitcoin network – a measure of its processing power that shows how much mining is taking place, on Monday hit its lowest level since late 2020, especially in major bitcoin mining hubs including Sichuan, Xinjiang, and Inner Mongolia.

Market movement

Meanwhile, the prospect of reduced stimulus as the global economy recovers from the pandemic is also sapping the appetite for speculative investments.

Bitcoin’s retreat has dented the argument put forward by advocates like Michael Saylor of MicroStrategy Inc. that the virtual currency is a dependable store of value. MicroStrategy said Monday it had purchased an additional 13,005 Bitcoins for about $489 million at an average price of about $37,617.

The news did little to bolster prices amid concerns that wider institutional adoption is stalling after Elon Musk and Tesla Inc. cooled on Bitcoin.

A conclusive break below $30,000 would mean a “massive hit” to sentiment and possibly “heavy selling activity” across the cryptocurrency market, Pankaj Balani, chief executive officer of digital asset derivatives exchange Delta Exchange, wrote in an email. But he expects the coin to rebound and challenge $40,000 in coming weeks.

by Styliana Charalambous Head of Market Research

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