Bitcoin fell below $30,000 on Tuesday for the first time since Jan. 28, as China expanded its crackdown on cryptocurrency mining and banking.
As of 9:20 a.m. Eastern time, Bitcoin was trading at $29,625, down 9% in the past 24 hours.
It rebounded to $32,400 by 1:45 p.m., about flat on the day, as buyers stepped in to buy the dip — a possible sign that the $30,000 level can hold.
Bitcoin has been on a steady slide over the past week. The cryptocurrency is now up just 3% this year, and has lost more than half its value since hitting all-time highs of $64,829 in April on the day that Coinbase Global (ticker: COIN) went public.
The latest wave of excitement over cryptocurrencies brought millions of new buyers in the market. PayPal Holdings (PYPL), Square (SQ), and Robinhood enabled easy buying and selling, and Coinbase Global ‘s public listing appeared to give the industry more legitimacy. But the surge of interest and excitement appears to have petered out. Activity on the blockchain has slowed considerably.
“On-chain, we are seeing decreased activity as active Bitcoin wallet addresses have declined to levels last seen 14 months ago, and Ethereum transaction fees and miner revenue have dropped 85% since last month, indicating a lack of usage on the network,” according to Fundstrat Crypto.
Crypto has followed similar patterns in the past, most notably in 2017 after exchanges began listing Bitcoin futures. The price rises until the catalyst — in this case the Coinbase stock listing — and then it crashes. The last time this happened, crypto didn’t achieve new highs for nearly three years.
Bitcoin appeared as if it was gaining new adherents. El Salvador decided earlier this month to make Bitcoin legal currency. But China’s moves are outweighing any positive momentum from that decision. And more government action is likely to weigh on the price for an extended period, predicts Richard Farr, chief market strategist at financial advisory firm Merion Capital Group.
“If there is ever a government that wants to do all it can to stay in power, it’s the Chinese Communist Party,” Farr wrote in a note to clients. “And cryptos threaten their increased controls on society (what good is a social credit score when it can be easily circumvented by crypto?). Poor El Salvador. They convinced their people to convert their dollars into Bitcoin. And now the dollar is up, and Bitcoin is down. And we don’t think the crypto selloff is done. Not when the Fed may have to hike a few times next year and more regulations are on deck.”
Others see hope in the latest crackdown, however. About two-thirds of Bitcoin mining occurs in China, where power is cheap in some areas. An exodus of miners from China could disrupt the industry in the short-term, but be positive in the longer-term, some industry experts say.
“How is more Bitcoin mining power moving to the United States and the West a bad thing?” asked David Marcus, who leads digital currency efforts at Facebook (FB), on Twitter. “In my opinion China cracking down on mining is a great development for BTC.”
Bitcoin mining is extremely energy intensive, consuming as much power as midsize countries like the Netherlands. That is a turnoff to investors who are concerned about climate change. North American Bitcoin miners have begun talking about shifting more power consumption to renewable sources, and being transparent about where they get their power. If they succeed in that goal, Bitcoin may become palatable to a wider swath of investors.
U.S. companies that focus on mining could benefit from the shift. Riot Blockchain (RIOT) is up 15% in the past month even as Bitcon prices have fallen.
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