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The world’s most popular cryptocurrency became on the chin on Monday after the Chinese government continued its crackdown on bitcoin miners and companies providing payment services for cryptocurrency-related transactions.
The People’s Bank of China said in a notice on Monday that “virtual currency trading activities disrupt normal economic and financial orders, lead to risks of illegal cross-border transfer of assets, money laundering and other illegal and criminal activities, and seriously violate people’s property safety.”
The central bank’s statement came a day after China’s provincial government in Sichuan announced that it would shut down more than two dozen suspicious crypto-mining operations in the hydropower-rich region.
The dollar price of BTCUSD, down -2.39% by about 11% early Monday morning before paring those losses slightly. Ether, ETHUSD, was trading -1.48%, down 13% on Monday afternoon, while Dogecoin DOGEUSD, down -13.64%, was down about 25%.
These moves underscore the influence that large governments, such as China and the United States, have on the price of bitcoin and other cryptocurrencies, experts say.
Renowned author, mathematician and investor Nassim Nicholas Taleb on Sunday published a paper criticizing bitcoin enthusiasts, who he said seriously underestimate the threat posed by government power over cryptocurrencies.
“By its very nature, bitcoin is open to all to see,” he wrote, referring to the pseudonymous, not anonymous nature of bitcoin. “Belief in one’s ability to hide one’s assets from government using a public blockchain…not just read by the FBI, but by people in the living room, requires a certain lack of financial spice and statistical understanding — and perhaps even common sense.”
Meanwhile, the regulators are clearly indicating that they will continue to enact more regulations related to cryptocurrency, including new rules that would make exchanges and banks tougher on knowing customers and anti-money laundering regulations.
Securities and Exchange Commission Chairman Gary Gensler has repeatedly discussed the need for greater regulation of crypto exchanges to protect investors, while saying that he considers many of the thousands of existing cryptocurrencies traded on exchanges to be unregistered securities subject to SEC enforcement action.
Sarah Brennan, an attorney with the law firm Harter Secrest & Emery, told MarketWatch that the most aggressive enforcement against crypto firms that sell unregistered securities poses a significant risk to their clients.
“It’s frustrating to be in this space because you don’t have clarity on a lot of things,” she said, adding that she was surprised that the SEC had not taken further enforcement action against crypto firms that raised money by auctioning it off. Tokens, which often violate federal rules. “But the Securities and Exchange Commission (SEC) has been … really silent on its agenda and its operational priorities,” she added.
In fact, earlier this month the regulator released a rule-making agenda outlining its priorities for the coming year, and any planned rule-making on cryptocurrencies appears to have taken a back seat to the regulator’s other priorities, including new disclosure rules on climate change. risk.
Experts say stablecoin regulation is perhaps the biggest threat to the broader cryptocurrency market. A stablecoin is a type of virtual currency that aims to maintain its correlation with a stable asset, such as the US dollar DXY, at -0.41%, facilitating trading from one cryptocurrency to another.
Many critics say that the growth of stablecoins such as Tether, USD Coin and DAI, poses significant risks to financial stability, especially after it was revealed that some of these dollar-pegged tokens are not backed by actual US dollars, but rather a mixture of many riskier assets. In February, New York State Attorney General Leticia James banned the use of Tether and the associated cryptocurrency exchange, Bitfinex, in the state.
After settling the investigation, Tether revealed that the currency was not backed individually by US dollar reserves, but largely by short-term loans to commercial entities. Tether Ltd., the issuer of the coin, said in a statement at the time: “Under the terms of the settlement, we do not admit any error. The settlement amount we agreed to pay the OA should be viewed as a measure of our willingness to put this matter behind us and focus on our business.” .
Tim Swanson, founder of tech consultancy Frim Post Oak, wrote in January that stablecoins were “parasitic” because they acted just like “non-bank financial intermediaries that provide similar services to traditional commercial banks, but outside of normal banking regulations.”
He argued that this type of behavior not only puts stablecoin holders at risk, but could threaten financial stability in general, if the stablecoin craze causes the price of other crypto assets and currencies to crash. Given that more than 75% of bitcoin trading takes place in Tether, this crash could also disrupt the market for bitcoin and other popular cryptocurrencies, according to crypto services firm FlowBank.
According to Brennan, the regulator that will step up to address these issues remains unknown, as he argued that federal bank regulators, securities regulators, and government regulators have overlapping jurisdiction over cryptocurrencies and that this has been complicated by the fact that President Joe Biden has yet to run. . A person who runs the office of the Comptroller of the Currency that supervises the national banks.
“There is going to be a regulatory slap fight here, and the SEC and CFTC have not been quick to say ‘this is ours’,” she said. “Congress or Fed regulators will have to attend to address the underlying issues with stablecoins from a market stability and safety perspective, to make sure that issuers have internal obligations to monitor and disclose and not only collapse and cause market instability.”
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