Did China Crash the Cryptocurrency Market?

The price of Bitcoin and Ethereum has plummeted by over 10% in the last 24 hours. Since their peak in November 2021, these currencies have lost more than 50%. So, does China’s government have anything to do with this? Is it a conspiracy theory? Or is there a more rational explanation for the sudden plunge in cryptocurrency prices? Read on to find out. This article will explain whether China’s government impacts Bitcoin prices.

Bitcoin’s Price Has Fallen Over 11%

The recent plunge in Bitcoin’s price has caused many people to turn to cryptocurrency alternatives. Ethereum, the second most valuable cryptocurrency, is currently trading at $2,895, down almost 20% from the start of January. Since the U.S. Federal Reserve signaled to stop buying risky assets, investors have become increasingly wary of these alternatives. They have sold off Ethereum, Bitcoin Cash, and Ripple in response.

The market has lost most of its gains since Monday’s stock selloff, with the top cryptocurrencies falling by around 6% to 10%. Analysts warn that the drop in Bitcoin could continue this week, with a drop in risky assets, including stocks. On Wednesday, the Federal Reserve met and moved its target date for raising interest rates.

While the Chinese government hasn’t changed its stance on cryptocurrencies, this market volatility has created an environment where some investors are scared to invest in cryptocurrencies. It was only recently that China’s crackdown on cryptocurrency exchanges led to a spike in Bitcoin’s price. Earlier this week, Tesla’s Musk suspended bitcoin payment programs in China because of concerns about the sustainability of bitcoin mining. Musk’s comments caused bitcoin to drop more than 12%.

While the price of Bitcoin has fallen over 11% in China, it has been falling worldwide since May, when China banned cryptocurrency mining. This ban halved Bitcoin’s price in a month. This price has not yet dropped further, but it may signify a more significant problem in China. The ban on crypto mining is causing a ripple effect throughout the crypto market. The price of Ethereum is down from $3,100 to $2,700, and other crypto assets have fallen from over two trillion to $1.835 trillion.

Ethereum’s Price

Chinese regulators have cracked down on cryptocurrencies, banning financial institutions from offering crypto-related transactions and warning investors not to engage in speculative trading. The result has been dramatic falls for both Bitcoin and Ethereum. At the time of writing, Bitcoin is trading at US$32,622, down nearly 8% from its all-time high of $64,621 set on April 14. This has led to a sharp decline in the price of Ethereum – which has lost almost 37% of its value over the past 30 days and is now down 64% from its January peak.

The halting of mining in China caused a significant selloff in cryptocurrencies. The price of Ethereum has fallen over 8% over the last 24 hours, dropping to just over US$2,000. The sudden pullback was blamed on fears that the collapse of Evergrande, a Chinese real estate giant, would impact the broader market. Moreover, increased regulatory scrutiny has contributed to panic selling.

Despite these concerns, the Chinese central bank has declared all cryptocurrency transactions illegal, affecting a massive part of the world’s economy. Chinese banks were banned from handling cryptocurrencies a year ago, reiterating that it’s illegal to handle them if they’re being traded in China.This week’s reversal in Tesla’s stance on accepting bitcoin as payment also contributed to the decline in cryptocurrency prices. Tesla executives pointed to the environmental cost of bitcoin mining, which consumes a significant amount of electricity.

In addition to China’s economic situation, the Chinese government is also concerned about the environmental impact of cryptocurrency mining. It has warned that “wilful speculation is dangerous and may not serve the interests of consumers.” Meanwhile, the Chinese government highlighted the potential risks of cryptocurrency trading by stating that virtual currencies do not have a “real” value.

Bitcoin’s Value Down More Than 50%

Since the beginning of the year, Bitcoin’s price has tracked closely with the Nasdaq, a stock index that heavily weighs technology stocks. On Thursday, Bitcoin dropped more than 25 percent to under $28,000, while the S&P 500 and Nasdaq fell over 1 percent. The drop in Bitcoin prices coincided with the collapse of tech stocks. Investors were grappling with higher interest rates and the ongoing war in Ukraine.

The Fed’s decision to start tapering bond purchases in November reduced the financial system’s liquidity. With less liquidity, investors priced higher interest rates and pulled their money out of riskier assets. The drop in Bitcoin’s price capped its bull run, and it has since looked to regain its footing.

It’s unclear whether the bitcoin price will return to its peak soon. Still, the price is similar to the trajectory of volatile technology stocks, which often operate at losses despite high growth. This makes bitcoin betting similar to betting on a tech company that may have significant future potential.

Despite its price crash, investors should remain optimistic about the cryptocurrency market’s future. Bitcoin’s value doubled in 2021 and has fallen more than fifty percent. The price reached an all-time high of $68,000 in November but fell back to $35,000 in January 2022. Still, some experts believe that Bitcoin will hit $100,000 shortly. If the price doesn’t recover soon, it’s time to sell.

There are several possible reasons why the cryptocurrency’s price has dropped. The most likely reason is that Terraform Labs has begun selling it aggressively. The company did not provide peg support. However, it began swapping out UST to USDC and USDT. However, once the rope began losing its peg, the value rebounded. This move could add meaningful sell pressure to bitcoin and drag down markets.

Ether-Backed Assets saw $28.9 million Worth Inflows.

Investors saw the recent headwinds in digital assets such as bitcoin and ether as a buying opportunity. In the past week alone, bitcoin and ether-backed assets have seen inflows worth $59.8 million and $35.1 million, respectively. Chinese users may be looking for ways to circumvent the ban on cryptocurrencies in China. This could be a boon for these decentralized exchanges.

Bitcoin and Ether-backed assets are seeing increased demand, fueled by investors’ perceptions of cryptocurrencies as a haven. Even Russians and Ukrainians are turning to crypto as an alternative to their nation’s financial institutions. This trend has led to institutional investors backing the broader cryptocurrency market. Last week, cryptocurrency-investment products saw a total inflow of $127 million, the highest inflows in three months.

Read More: Chinese tax authorities picked up NFTs

Evergrande Collapse

Evergrande faces massive debts from 171 Chinese banks and a worldwide COVID-19 pandemic. As a result, Evergrande shares have crashed 90% over the past year. The company’s problems are severe, however, because they could affect many customers. Those who paid deposits for the development before construction work began may not get them back if the company goes bankrupt. Those who lent money to Evergrande include design firms and materials suppliers.

The Chinese government has restricted lending to the real estate sector, and the company is facing bankruptcy after failing to pay its bondholders. This has contributed to concerns about global growth prospects, with sluggish economic growth weighing on markets. The Evergrande collapse in China has heightened investor concerns about contagion from a prominent Chinese property developer. Adding to the risk is the wide spread of the Delta variant amongst the workforce and lower vaccination rates.

China’s Crackdown On Cryptocurrencies

Earlier this year, the Chinese government banned cryptocurrency trading in its currency exchange services, payments, and settlements. The government cited concerns about the risks of cryptocurrencies and said that “there is no real support value for cryptocurrencies.” The new laws only affect financial firms, not individual cryptocurrency holders. So, what is behind the current crackdown? The reasons are multiple. While there is an underlying concern about financial stability, China’s crackdown on cryptocurrencies is also an attempt to prevent a new bubble from forming.

The Chinese crackdown essentially shut down exchanges in mainland China, but it also impacted the Bitcoin mining industry, leading to a decentralized Bitcoin landscape. The crackdown is likely to shift crypto power from China to other regions, including Southeast Asia, which was hit by the Covid-19 crisis. With this new capital, Southeast Asia could boost its digital economy. In the long run, this could benefit Chinese crypto entrepreneurs and the global crypto movement.

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