- Move sparks volatility
- $8.6bn of positions liquidated
- Beijing prepares own digital coin
THOMAS HALE AND TABBY KINDER — HONG KONG PHILIP STAFFORD — LONDON
Elon Musk reversed course on accepting bitcoin in payment but says Tesla will not be selling its holdings
Cryptocurrency markets swung in chaotic trading and related stocks were hit after Chinese regulators signalled a crackdown on the use of digital currencies, which have soared this year.
Bitcoin’s price tumbled as much as 30 per cent, with frequent rapid lurches lower, before clawing back its losses to less than 8 per cent.
Other digital coins were also hit by heavy selling, with ethereum, one of the best-performing cryptocurrencies in the past month, losing a quarter of its value. More than $8.6bn of positions have been liquidated in 24 hours, according to figures from bybt.com, a cryptocurrency data provider.
The turbulence came after the People’s Bank of China warned financial institutions against accepting cryptocurrencies as payment or offering related services and products, amplifying investor fears that regulators might tighten oversight of the freewheeling asset class. Virtual currency “is not a real currency” and “should not and cannot be used as currency in the market”, the PBoC said late on Tuesday.
Elon Musk, Tesla’s chief executive and a cryptocurrency enthusiast, last week reversed course on accepting bitcoin as payment for Tesla’s cars on environmental grounds. However, writing on Twitter yesterday he indicated that Tesla would not sell its bitcoin and would hold it for the long term.
Market conditions were highly volatile, with bitcoin’s price swinging in often wide ranges. Binance and Coin-base, two of the best-known cryptocurrency exchanges, both experienced technical woes as users tried to sell their holdings.
Other cryptocurrencies also tumbled, including the “joke” dogecoin, which fell 40 per cent.
US securities reliant on cryptocurrency trading and prices also slumped in early trading, before recovering. Coinbase shares dropped as much as 12 per cent to a record low and Micro Strategy, the software company turned bitcoin investor, fell 15 per cent.
Marathon Digital Holdings, the cryptocurrency miner, dropped 13 per cent. Galaxy Digital Holdings, the investment company of entrepreneur Michael Novogratz, fell 12 per cent.
The PBoC development reflected China’s campaign to limit institutional activity in cryptocurrencies as it prepares to launch its own digital coin. Other markets such as the US have remained comparatively open to institutional involvement.
“Part of it is they have their own digital renminbi, part is the lack of control in terms of cash outflows and part of it is trying to make sure people don’t get scammed,” said Paul Haswell, a partner at law firm Pinsent Masons in Hong Kong, of China’s crackdown.
China’s plans for a digital renminbi, which would provide its central bank with a record of all currency transactions in real time, could create a cashless payment mechanism to compete with vast online fintech platforms from Ant Group and Tencent.
In the US, regulators have made it easier for retail investors to buy cryptocurrencies and permitted the listing of crypto exchanges on public markets.
Large financial institutions, such as Goldman Sachs and JPMorgan Chase, are exploring offering investments in digital currencies to wealth management clients. In its latest financial stability review, the European Central Bank said that bitcoin’s price volatility made it risky. Yet financial stability risks to eurozone institutions were limited as they had little exposure, it added.
The ECB noted that the surge in bit-coin prices had eclipsed previous financial bubbles such as “tulip mania” and the South Sea Bubble in the 17th and 18th centuries.
Additional reporting by Wang Xueqiao in Shanghai
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Fonte: Financial Time del 20/05/2021
