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Chinese officials said tighter regulation is needed to protect the country's financial system
SAO PAULO - After managing to recover part of the losses of Wednesday's debacle, Bitcoin falls back sharply in early afternoon this Friday (21) after China's State Council issued a note about a discussion to crack down on mining and trading of the cryptocurrency in the country.
At 12:30 p.m. (EST), Bitcoin was down 9.8 percent year-to-date over 24 hours, quoted at $37,706. The cryptocurrency lost more than $4,000 in value in about half an hour after the news. In Brazilian reals, the digital currency has losses of 8.8%, to R$202,343.
In a statement by Chinese Vice Premier Liu He and the State Council, officials said stricter regulation is needed to protect the financial system. This was the first time that a top government body had discussed the issue.
The statement, released Friday evening in China time, said it is necessary to "crack down on bitcoin mining and trading and prevent the transmission of individual risks to the social field."
The news comes a day after U.S. authorities promised to get tough with those who use Bitcoin to carry out "illegal activities, including tax evasion." The Treasury Department has said it will require reports on cryptoactive trading above $10,000, just as it does with cash.
China, meanwhile, shows it has a concern about several other issues. "It is necessary to maintain the smooth operation of the equity, debt and foreign exchange markets, severely crack down on illegal securities activities, and severely punish illegal financial activities," the statement said.
For Safiri Felix, director of products and partnerships at Transfero, it is still too early to draw conclusions about this statement. According to him, the Chinese government has indicated a guideline, but has not informed what practical actions will be taken.
Despite the new drop in prices, he assesses that Bitcoin's fundamentals still hold, with a positive trend for the medium and long term. "The most affected tend to be the miners, who are an important stakeholder, but who do not rule the market," he evaluates pointing out that moving a mining data center is complex, taking a long time to dismantle and take it to another location.
Safiri further explains that after the sharp drop between Tuesday and Wednesday, there was a reduction in the excess leverage that existed in the market, which should lead to "less drastic" effects now. At the day's low reached on Wednesday, Bitcoin was worth around $30,000, a drop of more than 30 percent in less than a day.
Wednesday's drop had as a trigger news that China had reportedly banned financial institutions and payment means companies from participating in any cryptocurrency-related transactions. And although this was not news, it added to an already negative scenario due to other factors, such as Tesla suspending the use of Bitcoin for the purchase of its vehicles.
The collapse was further boosted by large leveraged positions in the currency, causing a cascade of stop loss orders (to limit investors' losses), which resulted in a massive sell-off of assets.
Last Wednesday, Safiri had already recommended investors not to make any moves with their crypto investments at this time. "My recommendation for those who are beginners is: turn off the screen, don't operate. Leave it to the professionals, wait for things to settle down and then you take a relative position whether you are going to sell or increase your exposure. Today is that day when it is best to do nothing," he said at the time.
