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Chinese Exchanges Lead Losses as Cryptos Woes Deepen Over China’s Statement

The ripple effect of a statement released by three Chinese bodies on Tuesday May 18 warning against crypto use continues to deepen across the space. 

Over a 24-hour period, the initial slight drop in the price of Bitcoin to ∼$43,000 shortly after the announcement worsened to touch over $30,000 – at $35.631 as at this writing – though it hasn’t traded below $30,000 since late January.

The top cryptocurrency is now at almost 40% of its $64,895 high on April 14 and heading for its first monthly decline since November 2018. 

ICO Analytics notes that the 28% drop triggered billions in liquidations to result in “one of the biggest single day falls” in Bitcoin history. The crypto news and data provider also notes that about $8.3 bln in derivatives positions was liquidated during the 24-hour period with Huobi, Bybit, OkEx and Binance incurring the largest losses. 

 

 

Shares of blockchain- and crypto-linked companies were not spared by the impact of the warning for financial institutions and payment companies to stop them providing crypto-related services. MicroStrategy, Riot Blockchain, Marathon Digital and Coinbase were down 8%, 9%, 12% and 6% respectively. 

Though conveyed by China’s apex bank, the notice was not issued by government officials but by industry associations – the National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China.

This should make it less powerful, a lawyer at Beijing-based law firm DeHeng Law Offices, Liu Yang, told Bloomberg. Meanwhile, Winston Ma, NYU Law School adjunct professor and author of the book “the Digital War”, believes the announcement is aimed at cutting crypto-related transactions out of China’s financial systems.

Should it be carried out to the letter, the new directive could make it more difficult for people to buy and sell cryptos in China. This will particularly affect crypto miners – a vast number of whom are in China – who will need to exchange newly-minted cryptocurrencies for yuan to fund their operations. 

It brings to fore the case being made for the pending rollout of China’s Digital Currency Electronic Payment (DCEP) which is getting nearer. Market insiders suggest that China will seek to protect its regulated digital yuan, which is already being tested across the country in pilot schemes for a possible 2022 rollout, from unregulated crypto activities. 

Aside from the latest crypto notice though, it’s worth noting that China has been carrying out a wide-ranging regulatory crackdown on its fintech sector. Last month, Tencent and Alibaba were slammed with fines in an antitrust clampdown on the country’s internet giants. This week, the China Securities Regulatory Commission launched an investigation into potential “pump-and-dump” schemes where stock promoters allegedly worked with companies to try to push up the prices of stocks listed on the domestic A-share market. 

Nonetheless, a tweet from the Bitcoin Association of Hong Kong sees the latest directive to financial and payment institutions not to engage in any crypto-related activity as nothing new. Also, the executive director at crypto hedge fund ARK36, Ulrik Lykke, shares that the current bear moves are not uncommon in the volatile crypto market.

“In terms of Bitcoin’s outlook, things may be looking grim right now, but historically this is just yet another hurdle for Bitcoin to overcome and a small one compared to what it has braved in the past,” Lykke, who points out that more than $250 bln has been scraped off the Bitcoin market alone in a week, said in a CNBC report

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