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A banner at the Bitcoin 2021 convention in Miami earlier this month. (Photo by Marco BELLO / AFP)
AFP via Getty Images
Bitcoin fell below $30,000 on Tuesday for the first time since Jan. 28, as China expanded its crackdown on cryptocurrency mining and banking.
As of 9:20 a.m. EST, Bitcoin was trading at $29,625, down 9% in the past 24 hours.
It rebounded to $32,400 at 1:45 p.m., roughly flat on the day, as buyers stepped in to buy the dip – a possible sign that the $30,000 level may hold.
Bitcoin has been on a steady decline over the past week. The cryptocurrency is up just 3% this year and has lost more than half its value since hitting all-time highs of $64,829 in April the day
Coinbase Global
(symbol: COIN) has gone public.
The latest wave of excitement around cryptocurrencies has brought millions of new buyers to the market.
PayPal Credits
(PYPL),
Square
(SQ), and Robinhood facilitated the buying and selling, and
Coinbase
Listing seems to give more legitimacy to the industry. But the wave of interest and excitement seems to have died down. Activity on the blockchain has slowed considerably.
“On-chain, we are seeing a decrease in activity as active Bitcoin wallet addresses have declined to levels last seen 14 months ago, and Ethereum transaction fees and miner revenue have fallen by 85% since last month, indicating a lack of usage on the network” according to Fundstrat Crypto.
Crypto has followed similar patterns in the past, notably in 2017 after exchanges started listing Bitcoin futures. The price rises until the catalyst – in this case, the Coinbase stock listing – then it crashes. The last time this happened, the crypto did not hit new highs for almost three years.
Bitcoin appeared as if gaining new adherents. El Salvador decided earlier this month to make Bitcoin legal tender. But the actions taken by China outweigh any positive momentum from this decision. And more government actions are likely to weigh on the price for an extended period, predicts Richard Farr, chief market strategist at financial advisory firm Merion Capital Group.
“If there’s ever a government that wants to do whatever it can to stay in power, it’s the Chinese Communist Party,” Farr wrote in a note to clients. “And cryptos threaten their increased controls over society (what good is a social credit score when it can be easily circumvented by cryptos?). Poor El Salvador. They convinced their people to convert their dollars into Bitcoin. And now the dollar is up and Bitcoin is down. And we don’t think the crypto selloff is over. Not when the Fed may have to hike multiple times next year and more regulations are in place.
Others, however, see hope in the latest crackdown. About two-thirds of Bitcoin mining happens in China, where electricity is cheap in some areas. An exodus of miners from China could disrupt the industry in the short term, but be positive in the longer term, according to some industry experts.
“How is Bitcoin’s rise in mining power to the US and the West a bad thing?” asked David Marcus, who leads digital currency efforts at
Facebook
(FB), on Twitter. “In my view, China’s crackdown on mining is a great development for BTC.”
Bitcoin mining is extremely energy-intensive, consuming as much energy as mid-sized countries like the Netherlands. This is a diversion for investors who are worried about climate change. North American Bitcoin miners have started talking about shifting more energy consumption to renewable sources and being transparent about where they get their energy from. If they are successful in this goal, Bitcoin could become acceptable to more investors.
US companies that focus on mining could benefit from this change.
Riot Blockchain
(RIOT) has risen 15% over the past month even as Bitcon prices have fallen.
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