Bitcoin’s plunge from $48,000 to $42,000 was sudden and stunning, but not without explanation. It was driven by an event in the world’s second-biggest economy – but one that doesn’t value competition.
In China, where the government has been clamping down on everything from perceived cybersecurity threats, social media, and even ride-share companies, reminding us all (lest we forget) that the nation is most definitely not a free-market system.
It hit the financial news like a freight train: China intensified its crackdown on cryptocurrency, declaring all financial transactions involving cryptocurrencies illegal and issuing a nationwide ban on crypto mining.
To be more specific, the ban came from the People’s Bank of China (PBoC), which is the country’s central bank. Along with a vow to crack down on illegal cryptocurrency trading activities, the PBoC banned overseas exchanges from providing services to mainland investors.
And Big Brother is apparently alive and well, as the PBoC further promised to stop all companies from facilitating cryptocurrency trading and to strengthen the monitoring of risks from such activities.
With all of that, Bitcoin took a big step back from the key $50,000 mark, and slipped further away from its all-time high of more than $63,000, which it reached in April.
At the same time, Chinese authorities have yet to take decisive action against real estate development giant Evergrande, which owes various businesses and individuals a cumulative debt of around $300 billion.
Really, though, the signs of a bigger crypto crackdown were there all along. As you may recall, the price of Bitcoin crashed in May when Chinese Vice-premier Liu He threatened that the government would “severely crack down on illegal securities activities and severely punish illegal financial activities.”
Bitcoin price chart, September 24. Courtesy: shacknews.com
He also promised a “crackdown on Bitcoin mining and trading” as part of China’s plans to “prevent and control financial risks.” In June, moreover, China banned mining in Sichuan, the country’s second-biggest Bitcoin mining province.
Still, crypto die-hards are optimistic. A survey by Voyager Digital showed that a majority of investors (8 out of 10) believe that Bitcoin will be above $56,000 in the next quarter, and 40% expect the price to be above $71,000 at some point in Q4 2021.
Wall Street experts aren’t running for the hills, either. “I wouldn’t call this the end of the world,” said Leon LaBrecque, an accountant and certified financial planner at Akron, Ohio-based Sequoia Financial Group. “It’s just a wake-up call.”
“This ought to be a recognition that it’s a volatile asset and all the ups and downs go together,” LaBrecque added, reminding investors that large price swings are to be expected.
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This applies across the board in the cryptocurrency realm. While Bitcoin was plunging to $42,000, Ethereum, the second-largest digital currency, fell more than 8% to roughly $2,890.
Wayne Wilbanks, managing principal and chief investment officer at Wilbanks Smith & Thomas Asset Management in Norfolk, Virginia, echoed LaBrecque’s sang-froid sentiment.
“Is government regulation going to cause major fluctuations in crypto? Yes. Will it make crypto obsolete? No… I don’t think China’s regulation, or even U.S. regulations, make that much difference in the long-term,” Wilbanks reassured.
Bitcoin 2021 price chart. Courtesy: Yahoo Finance
The math seems to bear out Wilbanks’s point. Bitcoin, for example, is still up roughly 40% in 2021 year-to-date despite the recent rout.
And keep in mind, cryptocurrency prices can move on much less impactful events, such as a tweet from Elon Musk.
Here’s where it gets really sinister, though. China’s cryptocurrency clampdown is happening while the country’s central bank has been testing its own digital currency, the electronic Chinese yuan.
A notice posted by the central bank explicitly called out Bitcoin and Ethereum for being issued by “non-monetary authorities.”
But, isn’t that the whole point of crypto? It’s supposed to be issued by the people rather than a centralized authority. That way, cryptocurrency can be immune to government manipulation as well as excessive currency printing and inflation.
George Selgin, an economist and senior fellow at the Cato Institute, summed it up concisely: “This is really about establishing a state monopoly in payments… The most obvious implication is that the state will have more opportunities to monitor citizens’ economic activity.”
Clearly, the only thing that the Chinese government likes more than less competition, is no competition at all.
Therefore, if you own Bitcoin and/or Ethereum, you’re not just holding a digital token. Really, you’re holding a token of economic freedom – something that can’t be stopped, try as they may.
Chief Editor, CrushTheStreet.com
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