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Bitcoin falls as China declares all crypto transactions illegal

·3-min read
Cryptocurrency electronic cash Bitcoin banner advertisement seen in Hong Kong. (Photo by Budrul Chukrut / SOPA Images/Sipa USA)
Cryptocurrency electronic cash bitcoin banner advertisement seen in Hong Kong. (SOPA Images/Sipa USA)

Bitcoin tumbled on Friday afternoon as the People's Bank of China said all cryptocurrency-related transactions are illegal.

The central bank vowed to crack down on illegal activities of cryptocurrency trading and banned overseas exchanges from providing services to mainland investors.

It also said it will stop all companies from facilitating cryptocurrency trading and will strengthen monitoring of risks from such activities.

Bitcoin (BTC-USD) was down 4.5% to trade at $41,509 (£30,357). It continues to stay below a key $50,000 mark, and is far off from its all-time high of more than $63,000, which it hit in April this year.

Ethereum (ETH-USD) the second largest crypto by market cap, plunged almost 7% and was trading at $2,918. 

"We’ve seen little in the way of knee-jerk reaction from clients surrounding this news from China," said Freddie Williams, sales trader at digital asset broker GlobalBlock.

"This news follows the Evergrande crisis earlier this week that sent the market tumbling. The market bounced back before this recent news broke and we could see a similar same pattern play out following this recent update," he added. 

The crisis he was referring to is investor worry about China’s second-largest real estate developer owing a cumulative debt of approximately $305bn.

"We’ve also seen this before from China where news of bans have been reported over the years, but it has not prevented adoption of bitcoin and digital assets from continuing their upward trend," Williams said.

The price of bitcoin had earlier crashed in May, triggered by Chinese vice-premier Liu He saying China would "severely crack down on illegal securities activities and severely punish illegal financial activities".

He promised a "crackdown on bitcoin mining and trading" as part of China's plans to "prevent and control financial risks". In June it banned mining in Sichuan, the country's second-biggest bitcoin mining province.

Bitcoin was down on Friday morning. Chart: Yahoo Finance UK
Bitcoin was down on Friday morning. Chart: Yahoo Finance UK

Liu's comments had followed statements from three state-backed organisations that warned digital currencies were not "real", should not be used for purchases, and could face regulatory changes from banks and other authorities.

In other crypto news, Twitter (TWTR) announced it will allow users to tip their creators using the cryptocurrency.

Crypto wallet company Strike announced on Thursday the launch of its Strike API platform. 

"Twitter will leverage Strike’s API to allow Twitter users to seamlessly tip with bitcoin from anywhere in the world with any Bitcoin Lightning wallet and give US and El Salvador users the ability to receive tips into their Strike account," it said in a statement. These are the countries Strike is available in.

Naeem Aslam, chief market analyst at AvaTrade, said “Twitter CEO Jack Dorsey is a big fan of cryptocurrencies and frequently discusses bitcoin on his social media accounts in an attempt to persuade and educate his followers about the technology." 

Read more: European markets down as investors continue to fret about Evergrande

Dorsey said earlier this year that “bitcoin changes absolutely everything...I don’t think there is anything more important in my lifetime to work on”.

A survey by crypto trading app Voyager Digital’s showed that investor sentiment towards crypto assets is increasingly positive when looking ahead to the last quarter of 2021.

The survey showed that a majority of investors (eight out of 10) believe bitcoin will be above $56,000 in the next quarter, with 40% expecting the price to be above $71,000 at some point in Q4 2021.

“Such bullish sentiment comes despite bitcoin continuing to stay below its all-time-high of $64,863 in April, and Q3 2021 being a period that has seen increased regulatory scrutiny around the cryptocurrency industry," the report said.

In the previous quarterly survey, the majority of investors thought bitcoin would finish Q3 between $56,000 to $70,000.

Watch: What are the risks of investing in cryptocurrency?

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