Bitcoin, Ethereum decline as China’s crypto crackdown continues

Bitcoin and Ethereum were among the major cryptocurrencies suffering price declines over the weekend as fears over the ongoing crackdown on digital currencies in China continued to drive a downturn in the market.

The world’s two largest cryptos suffered sharp drops overnight following news on Sunday that Chinese crypto exchange Huobi has scaled back and suspended some of its services in the country in response to moves by regulators to clamp down on activities in the market.

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The exchange is also reportedly suspending sales of crypto mining machines and custody services to Chinese users, making it much more difficult to operate in one of the world’s largest markets for cryptocurrency.

Huobi’s moves follow announcements last week from China’s Financial Stability and Development Committee that the financial sector should aim to “crack down on Bitcoin mining and trading behaviour”, a high profile warning that tighter government control of the crypto market could be coming.

A joint statement from the National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China said: “Recently, crypto currency prices have skyrocketed and plummeted, and speculative trading of cryptocurrency has rebounded, seriously infringing on the safety of people’s property and disrupting the normal economic and financial order.”

The renewed concerns over a regulatory crackdown in China sent the major cryptos sharply lower on Sunday evening, continuing steep declines in the market over the last few weeks.

Bitcoin hit a five-month low of US$31,248 on Sunday night, while Ethereum dropped to US$1,739 over the weekend in the wake of the Huobi announcement, its lowest price since late March.

However, both cryptos had mounted recoveries into Monday morning from their weekend lows, although Bitcoin was down 0.7% over the last 24 hours at US$36,484 while Ethereum had jumped 4% to US$2,251.

“It’s become clear Beijing’s stance isn’t a one-off warning but the beginnings of a serious attempt to limit the decentralised power of cryptocurrencies,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

She said the crackdown in China seemed to be intensifying with cryptocurrency mining the latest target, with the suspension of operations of major players.

“Already the ban on Chinese banks and payment firms from providing crypto transaction services had been a major set-back for Bitcoin’s use case.

“Although the first blow has come from China, central bank fists are at the ready elsewhere. In the US, Jerome Powell, the head of the US Federal Reserve said last week that cryptocurrencies pose a significant risk to financial stability, suggesting greater regulation may be necessary.”

She said another drag on the price could come amid mounting concerns about the amount of energy being used to mine cryptocurrencies, which could also lead institutions that have bought into Bitcoin to reduce their holdings, leading to fresh falls.

“The direction of travel though is far from clear, as despite the rollercoaster ride, some crypto fans have buckled up see the recent falls as an opportunity to buy into currencies like Bitcoin at a cheaper price,” Streeter added.

But with Bitcoin now 50% cheaper than April’s record high at just shy of US$65,000, this makes it appealing for many who missed out on previous moves, said Fawad Razaqzada, market analyst at ThinkMarkets.