Bitcoin and ethereum sunk as China intensified crackdown on cryptocurrencies

September 28, 2021: -Bitcoin and ethereum tumbled into the red, with traders rattled by tough talk out of China.

The price of bitcoin decreased 6% to $42,081, according to Coin Metrics data. Ethereum, the second-largest digital currency, came down 10% to $2,834.

It comes after the People’s Bank of China said in a Q&A that all crypto-related activities are illegal. Services offering trading, order matching, or derivatives for virtual currencies are prohibited, the PBOC said, while overseas exchanges are also unlawful.

Beijing is cracking down sharply on crypto this year. The Chinese government stamped out digital currency mining, the energy-intensive operation that validates transactions and produces new coins. That led to a sharp slump in bitcoin’s processing power as miners took their equipment offline.

The PBOC is banning the banks and non-bank payment institutions such as Alibaba affiliate Ant Group from providing services related to virtual currency. In July, authorities told a Beijing-based software company to shut down over its involvement with crypto trading.

Vijay Ayyar, head of Asia Pacific at digital currency exchange Luno, said that, though China’s position on crypto was not new, it was enough to tip the market into negative territory. He added that investors had already been unnerved by the U.S. Securities and Exchange Commission taking a stricter line on cryptocurrencies lately.

“The Chinese regulators have always been extreme in their views, and these comments are not new,” Ayyar told CNBC via email. “They have said these things many times in the past. But the reaction is interesting purely because we are in a slightly nervous environment for crypto with the recent SEC comments and the overall macro environment with the Evergrande news. So any comments of this nature will cause a sell-off in risky assets.”

“Overall, we’ve seen this play out many times in the past, with the dips being inorganic and bought up quite quickly, that too in environments where crypto is in a bull market cycle. Hence, price action-wise, as long as we don’t drop less than $38,000 on a high time frame basis, we are still in bullish territory.”