Bitcoin plunges in value as China starts cryptocurrency crackdown days after Elon Musk warning

Bitcoin has plummeted again after China said cryptocurrencies would not be allowed in transactions and warned investors against speculative trading in them.

The unit dropped below $40,000 for the first time in three months, falling by 10 per cent just a week after Elon Musk caused it to plunge by speaking out against its environmental impact.  

Trading in cryptocurrencies has been banned in China since 2019 to prevent money laundering as leaders try to stop people from shifting cash overseas. 

Bitcoin has plunged below $40,000 for the first time in more than three months after China said cryptocurrencies would not be allowed in transactions

The country had been home to around 90 percent of the global trade in the sector.

And in a statement, three state-backed industry associations – the National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China – said ‘cryptocurrency prices have skyrocketed and plummeted, and cryptocurrency trading speculation activities have rebounded’.

The price fluctuations ‘seriously violate people’s asset safety and disrupt normal economic and financial order’, said the statement, which was posted to social media by the People’s Bank of China.

The notice warned consumers against wild speculation, adding that the ‘losses caused by investment transactions are borne by the consumers themselves’, since Chinese law offers no protection to them.

It reiterated that providing cryptocurrency services to customers and crypto-based financial products was illegal for Chinese financial institutions and payment providers.

Elon Musk announced that Tesla would stop accepting bitcoin as payment due to environmental concerns

Bitcoin tumbled Wednesday from $45,600 to $39,240, its lowest since early February, and well off the record high of $64,870 seen as recently as last month. Analysts have warned it could go down as far as $30,000.

‘This is the latest chapter of China tightening the noose around crypto,’ Antoni Trenchev, managing partner and co-founder of London-based crypto lender Nexo, said.

And Adam Reynolds, of Saxo Markets, added: ‘It’s no surprise to me, as Chinese capital controls can be challenged by cryptocurrency purchases in the country and transfers out of the country.

‘So avoiding use of them in the country is essential to maintaining capital controls.’

Mining bitcoin requires masses of computers dedicated to guessing lengthy hexidecimal numbers, an endeavor that globally consumes more electricity than entire nations

Bitcoin has had a torrid few days. It took a heavy hit at the start of the week after Musk appeared to suggest Tesla was planning to sell its huge holdings of the unit. 

And that came days after the electric car giant said it would halt using it in transactions because of environmental concerns.

China is in the midst of a wide-ranging regulatory crackdown on its fintech sector, whose biggest players – including Alibaba and Tencent – have been hit with big fines after being found guilty of monopolistic practices.

The central bank has also sought to promote its own heavily regulated digital yuan, which it is testing across the country in pilot schemes.

Consumers already widely use mobile and online payments, but the digital yuan could allow the central bank – rather than the big tech giants – greater data and control over payments.