Downfall of cryptocurrency

  • The cryptocurrency market saw a major correction with prices of major currencies, including Bitcoin, Ethereum, BNB, among others crashing as much as 30% within 24 hours. 
  • Virtual currencies are retreating so broadly and sharply, it’s testing the durability of the cryptocurrency boom. 
  • This has come in the backdrop of the Chinese regulators announcing a crackdown on cryptocurrencies.
  • However, the Chinese announcement was the straw that broke the camel’s back. 
  • Bitcoin and Ethereum were on a decline since last week when Tesla CEO Elon Musk announced that the electric carmaker won’t be accepting Bitcoin as payment — a reversal of an earlier decision.
  • As Bitcoin's fortunes turned for the worse, other cryptocurrencies did not fare well either. 
  • Ethereum, the second-largest cryptocurrency in the world, is down 40%.
  • Dogecoin, the meme crypto popularised by Musk, lost 45%

WHAT HAS CHINA ANNOUNCED? 

  • China has barred financial institutions and payment companies from providing any services related to cryptocurrency transactions. 
  • This means that banks and online payments channels must not offer clients any service involving cryptocurrency, such as registration, trading, clearing and settlement.
  • China had issued such a ban in 2017 as well, but compared with the previous ban, the new rules have expanded the scope of prohibited services, and surmise that “virtual currencies are not supported by any real value”.

WHY CHINA TIGHTENED REGULATION? 

  • Industry directive warned speculative bitcoin trading had rebounded, infringing "the safety of people's property and disrupting the normal economic and financial order." 
  • Many Chinese investors were now trading on platforms owned by Chinese exchanges that had relocated overseas, including Huobi and OKEx.
  • Meanwhile, cryptocurrencies' potential threat to China's fiat currency, the yuan, has spurred the PBOC to launch its own digital currency.

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