Faltering stock markets, criticism from Elon Musk and a Chinese ban on its financial institutions providing cryptocurrency services combined to more than halve the value of Bitcoin this week from its previous all-time high of $64,804.
Tesla founder Elon Musk, who previously announced his company would both buy and accept Bitcoin for purchases, was the first to shift the market downwards last week when he condemned the coal-burning levels required to mine Bitcoin in China, declaring that his company would no longer accept the digital currency as a payment method.
Tesla & Bitcoin pic.twitter.com/YSswJmVZhP
— Elon Musk (@elonmusk) May 12, 2021
He also alleged that the reliance of the Bitcoin community on Chinese miners showed it was not as decentralised a currency as claimed.
The Chinese government’s decision on Tuesday to ban the use of all cryptocurrencies by the country’s financial institutions then sent prices into a severe spiral, with Bitcoin dropping as low as $30,415, a key support level among traders hoping a bear market will not take hold in the early summer.
The move by China is broadly being viewed as an attempt to hamper competition between cryptocurrencies and the country’s digital yuan, which is also being positioned for international use in what could become a threat to the US dollar’s dominance.
“Although China represents as much as 75% of all bitcoin mining, the Chinese government is clearly averse to seeing bitcoins rise in popularity as medium of exchange,” Boris Schlossberg, managing director at BK Asset Management, said in a note.
“Instead, Chinese authorities are keen to see their own digital currency in the form of the yuan become the primary unit of account in the Chinese economy.”
The stock market’s stilted performance this week has also compounded fears that the bull-run crypto-owners have enjoyed is coming to a close, as confidence begins to wane amid fears of a Federal Reserve interest rate hike.
Musk’s interest in the crypto-sphere was seen again last night however as he appeared to indicate that Tesla would not be selling its $1.26 billion Bitcoin holdings, tweeting out the “diamond hands” symbol synonymous with those who intend to hold their portfolio despite the turbulence and volatility often experienced.
Tesla has 💎 🙌
— Elon Musk (@elonmusk) May 19, 2021
The price of Bitcoin has recovered to $40,129 since yesterday’s collapse, sparking renewed hopes among investors that the bull-run has not quite run its course.
In a week that saw crypto markets shed $850 billion in value however, experts warn that there are clear signs of an approaching, sustained bear market based on historic patterns, whilst other commentators warn central banks might soon follow suit with China’s clampdown.
“China has for some time been putting pressure on the crypto space, but this marks an intensification – other countries might follow now as central banks make strides towards their own digital currencies,” Neil Wilson of Markets.com told the BBC.
“Until now, Western regulators have been pretty relaxed about Bitcoin, but this might change soon.”