China has long expressed displeasure with the anonymity provided by bitcoin and other crypto tokens.
And the country, which accounts for over half of global bitcoin production, is now cracking down harder on cryptocurrencies.
China’s central bank recently summoned top banks and payment firms, including China Construction Bank and Alipay, asking them to get tougher on cryptocurrency trading.
The People’s Bank of China urged institutions to launch thorough checks on clients’ accounts to identify those involved in cryptocurrency transactions, and promptly cut their payment channels.
Crypto prices have fluctuated wildly in recent weeks as China intensifies a crackdown on trading and mining operations. On Monday, bitcoin slumped more than 10% after Beijing pulled the plug on the massive mines of Sichuan province.
China has always worked to tightly control its financial system. Bitcoin, the world’s largest digital currency, and other cryptos cannot be traced by a country’s central bank, making them difficult to regulate.
Analysts say China also fears the proliferation of illicit investments and fundraising; it has strict rules around the outflow of capital.
The widening crackdown complements China’s world-leading project to introduce its own digital currency, allowing the central government to monitor transactions.
China launched tests for a digital yuan in March. The aim is to allow Beijing to conduct transactions in its own currency around the world, reducing dependency on the mighty dollar.
“It is about making the yuan more internationally available whilst maintaining complete control,” according to Jeffrey Halley, Asia Pacific analyst at Foreign Exchange trading firm Oanda.
The cryptocurrency market has for long been used to frequent and extreme speculative frenzy with bitcoin standing as a perfect measure of the wild ride.
Here are some higher stakes involved in the speculative plays.
Over half of the $410bn spent on acquiring current bitcoin holdings occurred in the past 12 months, according to a report from blockchain analysis firm Chainalysis. About $110bn of that was spent on buying it at an average cost of less than $36,000 per coin.
It would mean the vast majority of investments aren’t making a profit unless the coin trades at $36,000 or higher, according to a Bloomberg report.
Bitcoin is held by relatively few people, meaning that price swings can be magnified during low-volume periods. And the market remains hugely fragmented with dozens of platforms operating under different standards.
There are earlier caveats too, vis-à-vis the cryptocurrency trading mania.
Bitcoin investors need to be prepared to “lose all their money,” European Central Bank governing council member Gabriel Makhlouf said in late January.
The comments echoed scepticism from ECB leaders. The cryptocurrency is a “highly speculative asset,” according to President Christine Lagarde.
Bitcoin has more than halved from a record of $65,000 in mid-April, though over the past year it’s still up over 200%. The wider Bloomberg Galaxy Crypto Index has more than quadrupled over 12 months.
China’s intensifying crackdown pushed bitcoin below $30,000 yesterday for the first time in five months. It’s a price level seen as key to the short-term outlook for the largest virtual currency.
Amid an intensifying Chinese regulatory assault, the see-saw volatility in the crypto markets has dented the narrative that virtual currencies are a dependable store of value.
