The Bitcoin rollercoaster has taken another plunge
THE BITCOIN ROLLERCOASTER has taken another plunge as China has begun what may be a wider crackdown on the cryptocurrency.
The People’s Bank of China said on Wednesday that it was inspecting some of the country’s main Bitcoin trading platforms in Beijing and Shanghai. The officials cited foreign currency exchange, market manipulation, money laundering and financial security risks as the reason behind the inspections. However, the real reason may be worries about how much currency citizens are sending overseas.
The price of Bitcoin fell by 16 per cent overnight on the news, rounding off a bad few days for the currency which has lost 30 per cent over the past week.
The Chinese move is a big deal because approximately 90 per cent of all Bitcoin transactions originate in China, with the country home to 70 per cent of all bitcoin miners: organisations and individuals who donate computing power to verify transactions in return for a fee.
Although prone to wild fluctuations, Bitcoin has become an alternative to gold as a refuge for investors in times of global economic uncertainty. During 2016 its value against the dollar more than doubled, peaking at more than US $1,100 in the New Year, helped by the election of Donald Trump, India’s removal from circulation of low denomination banknotes and China’s currency devaluations.
China’s has strict rules about currency exports, which Bitcoin allows people to circumvent as it is hard to trace transactions. A crackdown by the authorities has been widely predicted, therefore.
Trading on the financial markets is a hugely popular past-time in China where the renminbi cannot be exchanged for hard currency. The value of the renminbi fell by seven per cent during 2016, increasing the appeal of Bitcoin, and contributing to its rise. Meanwhile, the recent devaluation of China’s currency has speeded up the exodus of capital from the country.
Gil Luria, an analyst at Wedbush Securities said that Bitcoin’s value is largely in China’s hands.
“China giveth and China taketh away,” he told Bloomberg. “The rally in bitcoin over the preceding few weeks was likely driven by Chinese capital flight and speculation, which is why concerns about China taking a firmer stance against the use of bitcoin is likely putting pressure on the price.
The last big drop in Bitcoin’s price came last August when Hong Kong-based exchange Bitfinex was hacked μ.