The Bitcoin (CRYPTO: BTC) price is getting hammered.
One Bitcoin is worth US$32,234 (AU$42,979). That’s down 10% in the past 24 hours. The Bitcoin price is now less than half the all-time highs of US$64,829 reached in mid-April.
And it’s not just Bitcoin that’s falling.
According to data from CoinGecko, the global crypto market cap is currently US$1.31 trillion. That’s down 14.9% over the past 24 hours and down from some US$2.6 trillion just last month.
A valuable lesson in cryptocurrency risk, perhaps, for the estimated 4 million Australians who said they planned to invest in cryptos as a means of accumulating wealth.
Why is the Bitcoin price crashing?
You’ll hear all sorts of reasons why the Bitcoin price is tumbling.
Technical analysts like to point to something called the ‘death cross’.
If you’re not familiar, the term simply means that an asset’s average price over the past 50 days has dropped below its 200-day moving average.
In share markets, this can – but certainly doesn’t always – indicate that a company is under pressure and could suffer further share price falls.
But in the wild west of cryptocurrencies, the ‘death cross’ hasn’t proven a statistically reliable indicator. At least, not yet.
In fact, Bitcoin passed into the dreaded death cross in March 2020. By 15 March 2020, the Bitcoin price was down to US$5,355. And, well, you know what happened next.
The digital token went ballistic, hitting US$64,829 just 13 months later.
So if it’s not the death cross, what is pushing the Bitcoin price lower?
China cracks down on its banks
The Chinese government has been ramping up its efforts to crack down on or even eliminate Bitcoin and Ethereum (CRYPTO: ETH) trading and mining within the Middle Kingdom.
The People’s Bank of China (PBOC) central bank has linked cryptocurrencies to money laundering, financial instability and illegal cross-border transactions.
As Bloomberg reports:
Representatives from Industrial and Commercial Bank of China Ltd., Agricultural Bank of China Ltd. and payment service provider Alipay were reminded of rules that prohibit Chinese banks from engaging in crypto-related transactions… China Construction Bank Corp., Postal Savings Bank of China Co. and Industrial Bank Co. were also at the meeting, according to the PBOC statement.
Jeffrey Kleintop, chief global investment strategist for Charles Schwab & Co said:
The fact that there’s a crackdown there perhaps does take away some of its lustre. I’m not sure it’s a signal of a longer-term change in direction, but it can certainly create some volatility. No one is sure the extent of the crackdown and China is an important player in the Bitcoin market.
Meltem Demirors, chief strategy officer at CoinShares, added, “There’s just a lot of fear, and when there’s fear, people sell risky assets. I do think that Bitcoin’s still perceived as a risk-on asset. Generally, investors are skittish.”
Bitcoin price hit by mining bans
It’s not just Chinese financial institutions that are being banned from handling cryptos.
The Bitcoin price, along with the Ether price, is also under pressure from renewed Chinese bans on crypto mining.
And according to the Cambridge Bitcoin Electricity Consumption Index, China was responsible for approximately 65% of global Bitcoin mining as of April 2020.
Sichuan, the region in China where most crypto mining takes place, is taking steps to stamp out all such activity, with Bloomberg quoting a report from China’s Global Times, stating “the closure of many Bitcoin mines in the province has resulted in more than 90% of China’s Bitcoin mining capacity being shuttered”.
Oh…don’t forget the stablecoin crash
One more lodestone pulling down the Bitcoin price appears to be the rapid crash by stablecoin (not-so-stablecoin?) Titan to almost zero.
Edward Moya, senior market analyst at Oanda Corp, cited the Titan crash in an email (from Bloomberg):
Bitcoin tumbled as the demise over the Titan token raised the pressure of regulators to deliver more protections for the public. Titan’s crypto crash was a surprise to many as it is a partially collateralized stablecoin. Given the risk-off environment that is hitting Wall Street, cryptocurrencies are under pressure.
So with the Bitcoin price now at less than half its record highs, is it time to buy the dip…or time to avoid the falling knife?
I’ll get back with you on that next month!