This has not been a good week for cryptocurrency investors. They’ve seen about a quarter of the value of all crypto assets wiped out amid a crackdown on crypto mining and transactions in China. The price of bitcoin, the dominant crypto asset, plunged below $US30,000 on Tuesday before recovering to trade above $US33,000. Last Friday, it was still trading at $US40,000. Bitcoin’s market capitalisation has plunged from nearly $US1.2 trillion ($1.6 trillion) at its peak two months ago to about $US630 billion in an overall crypto market, whose value has shrunk from $US2.5 trillion earlier this year to $US1.35 trillion. "The implosion in crypto prices in response to China’s actions is the latest demonstration of what has been a permanent feature of crypto assets - their violent volatility." The latest implosion in the volatile bitcoin price – a year ago it was trading at only $US9300 – came after China followed up a crackdown on crypto mining last month by ordering its major banks and digital payments giant Alipay not to provide services related to cryptocurrency transactions. The anti-crypto push in China is unlikely to be unique as governments and central banks around the world have been increasingly concerned about the implications of the explosion in crypto assets and their value. While China’s actions have been the most dramatic, the US passed new anti-money laundering legislation earlier this year that will enable the US Treasury to regulate cryptocurrencies. The Biden administration has foreshadowed new regulations to prevent digital currencies from undermining its anti-money laundering laws. That’s consistent with views in Europe and other developed economies, concerned about tax evasion and the use of crypto assets in criminal activities.
There are also concerns about financial stability, given the vastly increased acceptance of crypto assets as an alternate investment category and the longer-term threat that they might pose to conventional central bank-issued money. China’s motivations for its assault on cryptocurrencies include concerns about money-laundering, which is a particular issue for a country that imposes stringent capital controls and exerts pervasive and intrusive scrutiny and control over the activities of its citizens. The authorities have also been clamping down on the dominant digital payments companies, concerned about their growing power within the economy and financial system, the anonymity of transactions and the implications for financial stability. They have sought access to the fintech’s customers’ data. China effectively pulled the rug from under what would have been the world’s largest initial public offering earlier this year, Ant Group’s $US300 billion-plus float, as part of a broader effort to more intensely regulate its previously lightly regulated or unregulated fintechs. The directives to its banks and Alipay fit within that larger push to tighten central control over all financial activity. The restrictions on bitcoin mining had different drivers. In May, the government imposed a severe crackdown on crypto mining which, given that an estimated 65 per cent to 70 per cent of all bitcoin mining capacity was based in China, represents a massive threat to the cryptocurrency.
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