The week started with the story of Chinese developer Evergrande - about its insolvency and the risk to financial institutions. Along the way we had the Fed, which may accelerate interest rate hikes. And we end again in China, where the Central Bank dealt a blow to cryptocurrencies.
It seemed that bitcoin had started to do very well after its earlier declines, and perhaps that would have continued for the rest of the week if not for the fact that it fell more than 8 percent on Friday, to around $41,000. The reason?
Reasons for bitcoin's sharp decline
The central bank of China (PBoC) published on its website that all cryptocurrencies are not fiat currencies and cannot circulate in the market. The bank added in its announcement that all related transactions, issuance of tokens and derivatives for virtual currencies are strictly prohibited.
China introduced intensive oversight of the cryptocurrency industry this year due to heightened concerns over the risks of fraud, money laundering and excessive energy consumption. China's tough stance seemed to be the reason why bitcoin's price fell below $31,000 in May. So China's war, historically a hotbed of cryptocurrency activity, seems to be continuing at best, creating another test for the network and the cryptocurrency market.
What is China going to do about cryptocurrencies?
According to Cointelegraph, 10 Chinese state authorities, including the PBoC, the Cyberspace Administration of China and the Ministry of Public Security, have set up a "coordination mechanism" to prevent financial players from participating in any cryptocurrency transactions. According to the announcement, the authorities and institutions involved have completed significant improvements to cryptocurrency monitoring platforms to effectively identify illegal cryptocurrency transactions.
Under China's current law, financial management departments, cybersecurity and information departments, telecommunications departments, public security departments, and market supervision departments are working closely together to cut off payment channels, get rid of certain websites and mobile apps.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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