Bitcoin Drops as Chinese Financial Bodies Berate Crypto Use
The price of Bitcoin fell by about $2,000 on Tuesday May 18 shortly as three major finance-related bodies in China released a statement warning investors against engaging in speculative crypto trading. According to the timing on the CoinGecko crypto aggregator price chart, the sharp nosedive recorded in the price range of the top cryptocurrency from $45,660 to $42,947 over an hour period was consistent with the release of the joint statement by the National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China.
Desist from crypto warning
The three bodies note that financial and payment institutions may not use cryptocurrency for products and services pricing; underwrite insurance business related to them; directly or indirectly provide customers with other services like registration, transaction, clearing, settlement and other services related to cryptocurrencies. They also warned the institutions against carrying out the storage, custody, mortgage and issuing of financial products related to cryptocurrencies and for investment purposes.
“Internet platform enterprise member units shall not provide network business premises, commercial display, marketing publicity, paid diversion and other services for cryptocurrency-related business activities, and shall promptly report the relevant problems and provide technical support and assistance to the relevant investigation and investigation work,” a translated version of a section of the statement says.
Their “announcement on preventing the risk of speculation in virtual currency transactions” comes in the wake of Elon Musk’s reversed Bitcoin sentiment which crypto data analytics firm Glassnode says it’s observed made new entrants panic sell and bring about “a historically significant correction that is testing $BTC hodler conviction.” China banned crypto exchanges and initial coin offerings in the past three years but has not stopped individuals from holding cryptocurrencies. The three bodies did encourage individuals to “establish a correct investment philosophy”, avoid trading speculation, loss and cherish personal bank accounts by not using them for crypto-related transactions which are not protected by law.
Considering DCEP implication on cryptos
As the pending rollout of China’s Digital Currency Electronic Payment (DCEP) nears, there have been concerns that the PBoC-backed digital yuan will have a significant impact on existing cryptocurrencies like Bitcoin as China continues its strive to be at the forefront of changing the face of money. The DCEP may be used by the Chinese government to exert greater control over their citizens including crypto users through surveillance. It can also necessitate stricter regulation, a major factor that has helped stoked the expansion of the crypto space. However, the line has not been clearly drawn on how China’s central bank digital currency (CBDC) will interact with those that are free of state control.
Meanwhile, while recognizing that a CBDC may open up new policy options, Fitch Ratings has pointed out in a new report, “Central Bank Digital Currencies: Opportunities, Risk and Disruption” that widespread adoption of CBDCs may be disruptive for financial systems if associated risks are not managed. CBDCs could erode oligopolies among payment-system providers and their control over payments-related data while improving central banks’ capacity to track financial transaction data and aid the prevention of financial crime, the credit rating agency says. But if CBDCs offer less privacy than cash or limit the amount on e-wallet, some may be deterred from using them, it adds.
Other associated risks may include the potential for funds to move quickly into CBDC accounts from bank deposits thus causing financial disintermediation and heightened cybersecurity threats as more touchpoints are created between the central bank and the economy.