Bitcoin Prices Get Smashed on News From China
Last Friday China announced that it would close down local Bitcoin exchanges which caused prices of Bitcoin to drop sharply by over $100 USD at the end of the day.
According to Google translation, a local news outlet Caixin announced that the Chinese Government is planning to close local Bitcoin exchanges sometime in the near future.
Monday News from China
On Monday, September 11th 2017, China prohibited organizations from using initial coin offerings (ICOs) to raise funds, which triggered an even further drop in the price of Bitcoin – this time by another $200 USD. However, it appears that the Chinese government will continue to allow OTC trades (at least for the time being).
The China ban not only puts a stop to the distribution of many altcoins but also requires individuals and organizations who have executed ICOs to return funds to investors. Health Mutual Society is one of the projects that have started returning funds to investors.
Basically, ICOs enable organizations to raise funds through the sale of new cryptocurrencies and tokens that have similar characteristics of Bitcoin in exchange for cash or other stable digital currencies. The People’s Bank of China declared that this practice which has taken root in the Bitcoin community around the world (and China) amounts to illegal fundraising.
Since ICOs came into existence in 2014, about $1.78 billion has been collected through fundraising. This is according to CoinDesk ICO tracker data. However, there has always been concerns that some of these ICOs might be scams and there is no possibility that contributors will receive any return on their investment. Hence, regulation could actually be a good thing in the long term.
Friday’s China News
The price of Bitcoin dropped to $4,241 USD on Friday and had slumped to a low of $4,108 by Monday. At the beginning of the week, Bitcoin prices showed signs of recovering because the Chinese government had kept relatively quiet on the matter. Financial experts disagreed with the argument that the China ban on Bitcoin exchange platforms would have long-term effects on the overall Bitcoin trade which further raised confidence among traders. However, within three days, the prices have declined by over $1,000 USD to $3850 USD by early Thursday and are now sitting at intra-day lows of $3,363 USD.
The rumors of the ban started on 4th of September which caused Bitcoin prices to plummet to $4,000. But it later recovered to about $4400 and tried to stay above the $4,000 threshold. However, things have now taken a turn for the worst, and the prices have dropped below the $4,000 mark. Cryptocurrencies in the Asian markets such as the famous cryptocurrency NEO were also adversely affected by China’s announcement of its plan to prohibit ICOs and label them as illegal. Overall, the announcement sparked a sell off of $15+ billion in the whole crypto markets.
China Makes up Nearly 25% of Crypto Trading
This is a major blow to the cryptocurrency markets seeing that China accounts for almost 25% of trades. Also, the market has panicked, and investors pulled out their profits. Some exchanges like Binancle plans to stop accepting Chinese IP addresses to avoid stirring trouble with the government.
Jamie Dimon Comments
JP Morgan’s CEO Jamie Dimon has also been blamed as another reason for the uncertainty in the market following his vicious attack on Bitcoin when he said that it is a scam. In reality, Jamie Dimon’s remarks are not surprising because investment banks have long criticized Bitcoin and cryptocurrencies, and JP Morgan is one such bank. Its CEO’s comments might have a negative impact on the market sentiments, but they will not have such a big impact on the Bitcoin market.
Just a week ago on September 2nd, the prices had soared to a record $5,000 after increasing by almost 350% since the beginning of the year.
Long Term Positive for Cryptos?
Despite the turmoil that the ban has caused in the cryptocurrency market, experts think that this move may also have a long term positive side to it. They are foreseeing that it will bring about regulation and order in the Bitcoin trade and probably reduce scams (especially in ICO markets).
At the beginning of the year, the country showed signs of regulating cryptocurrencies when it banned the withdrawal of assets from Chinese trading platforms. It is predicted that other countries such as Canada, Israel and South Korea are planning to follow suit and clamp down ICOs as well.
Hayter of Crypto Compare pointed out that China’s attempt to clamp down ICOs shook the market in the past, but it still survived because most of the trade volume actually comes from South Korea, the US and Japan. Therefore there is still hope that the market will revive.
As of now, exchanges based in China are still operating normally which is a sign that the state has not enforced the new ban yet. It is expected more announcements from the Chinese Government may happen as early as this week, and it will undoubtedly affect Bitcoin prices further until all this talk comes to an end and traders have a chance to evaluate the outcome.