Bitcoin and ether slide as China steps up cryptocurrency crackdown

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Bitcoin and ether fell on Friday as traders rocked by difficult talks from China.

The price of bitcoin fell about 5% to $ 42,496.12, according to data from Coin Metrics. Ether, the second largest digital currency, fell 7% to $ 2,921.53.

It comes after the People’s Bank of China said in a question-and-answer session that all crypto-related activities are illegal. Services offering exchanges, order reconciliations or derivatives of virtual currencies are strictly prohibited, the PBOC said, while foreign exchanges are also illegal.

Beijing has severely cracked down on crypto this year. The Chinese government has decided to eliminate digital currency mining, the energy-intensive operation that validates transactions and produces new coins. This caused bitcoin’s processing power to drop sharply when miners took their equipment offline.

The PBOC has banned banks and non-bank payment institutions like Ant Group, a subsidiary of Alibaba, from providing services related to virtual currency. In July, authorities asked a Beijing-based software company to shut down over its involvement in the crypto trade.

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Constantine Tsavliris, head of research at crypto-data site CryptoCompare, said the harsh rhetoric would likely result in a “short-term sell-off as negative news pushes investors to take a conservative stance.”

“The recent news from China builds on previous announcements from May regarding a crackdown on cryptocurrency mining and a ban on financial and payment institutions from crypto-related services,” Tsavliris told CNBC.

“Due to the bans, we have previously seen a short-term sell-off and a shift in mining out of China, followed by a rapid recovery in July and August,” added.

Vijay Ayyar, head of Asia-Pacific at Luno digital exchange office, said that while China’s stance on crypto was not new, it was enough to put pressure on the market. Investors had previously been pissed off that the United States Securities and Exchange Commission has taken a tougher line on cryptocurrencies lately, he added.

Coinbase, America’s largest cryptocurrency exchange, recently engaged in a public feud with the SEC. Regulators have threatened to sue the company for a product called Lend that allegedly allowed users to earn interest on their holdings. Coinbase recently decided to ditch Lend.

“Chinese regulators have always been extreme in their opinions and these comments are not new,” Ayyar told CNBC. “They’ve said these things a number of times in the past. But the reaction is only interesting because we’re in a slightly nervous environment for crypto anyway with the recent SEC commentary and the overall macro environment with the news. Evergrande. So any comment of this nature will cause a massive sale of risky assets. “

Global markets have been disrupted of late by fears of a potential collapse of Chinese property developer Evergrande.

“Overall, we’ve seen this happen a number of times in the past, with such declines being inorganic and bought quite quickly, especially in environments where crypto is in a bull market cycle,” Ayyar said, referring to the repression in China. “As far as the price action goes, as long as we don’t go below $ 38,000 on a high time basis, we are still in bullish territory.”

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