In yet another testament to the nascent market’s extreme volatility, cryptocurrency prices tumbled Friday morning after China’s central bank reiterated a sweeping ban on digital asset transactions, prompting some experts to warn the harsh rhetoric may encourage more nations to take similar measures, while others pointed out that prices have quickly recovered from such announcements in the past.
The value of the world’s cryptocurrencies tanked to a low of about $1.8 trillion by 7:15 a.m. EDT on Friday, falling roughly 9% and losing $188 billion in market value within just three hours of China’s announcement, according to crypto-data website CoinMarketCap.
The stark plunge wiped out virtually all of the gains since a global stock selloff on Monday triggered the crypto market’s worst decline in weeks, with top cryptocurrencies bitcoin, ether and Solana’s sol falling between 6% and 10% apiece Friday morning.
In a Friday note, analyst Adam Crisafulli of Vital Knowledge Media pointed out China’s announcement is “very consistent with its past rhetoric,” but still cautioned investors against buying at current prices because it’s likely Beijing’s measures could be adopted by other countries, with India among the biggest economies voicing hesitancy toward cryptocurrencies.
Meanwhile, Freddie Williams, of digital asset broker GlobalBlock, said he’s seen “little in the way of a knee-jerk reaction from clients” after the latest ban, adding the market could bounce back once the temporary fear subsides, as it did after Monday’s decline.
Williams further noted China has reiterated its so-called bitcoin ban several times over the years (most recently in May), but that it still hasn’t prevented institutions, particularly in the U.S., from bolstering cryptocurrency adoption at a staggering pace.
Beginning in late 2017, a wave of early regulatory crackdowns sparked a nearly 80% crash in cryptocurrency prices and a years-long bear market. At the time, many countries, such as South Korea, started clamping down on initial coin offerings, the then booming crowdfunding technique used to raise funds by minting new cryptocurrencies. That same year, China announced its sweeping ban on cryptocurrency transactions, saying financial institutions were barred from directly or indirectly providing trading, settlement or insurance services for virtual currency businesses—measures reiterated in the government’s Friday announcement. Officials also reissued the regulation in May while warning of additional rules to come. China introduced its first big regulatory action toward cryptocurrencies in 2013, when it banned bitcoin as a medium of transaction while recognizing it as a virtual property.
Bitcoin and the broader cryptocurrency market soared during the pandemic in light of inflationary concerns and soaring institutional adoption, but prices ended a year-long rally in April, when Tesla—one of bitcoin’s biggest corporate investors—disclosed it sold a large chunk of its holdings and wouldn’t buy more until bitcoin mining consumed less energy. Markets have largely failed to recover since then amid China’s intensifying regulatory crackdown, with the value of the world’s cryptocurrencies still about 30% below its peak of nearly $2.6 trillion on May 12.
“China’s authoritarian crackdown on crypto, including #Bitcoin, is a big opportunity for the U.S.,” Sen. Pat Toomey (R-Pa.), one of several lawmakers who’s introduced legislation to help soften potential cryptocurrency regulation in the U.S., said Friday on Twitter, adding: “It’s also a reminder of our huge structural advantage over China.”