Bitcoin price plunges as China threatens to crackdown on crypto

Andrew Griffin
Friday 21 May 2021 18:11 BST

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Bitcoin’s price has plunged again after reports that China had committed once more to launch a crackdown on cryptocurrency.

In the space of five minutes, the price of bitcoin lost more than 6 per cent and appeared to be continuing to fall. Other large cryptocurrencies, such as Ethereum, were hit by similarly sudden and significant drops.

The latest drop took it back down towards the lows it had approached in the wake of another report from China, earlier this week, that suggested authorities would be launching new regulation of cryptocurrencies.

Over the course of the week, bitcoin has now lost some 25 per cent of its value, amid concerns about new regulation – not only in China but elsewhere too.

The losses have been even more dramatic in some of the smaller coins. Ethereum has lost almost 40 per cent, and dogecoin is down by a third.

The latest drop came amid reports that Chinese vice premier Liu He had reiterated that the country planned to crackdown on both bitcoin mining and trading.

His comments followed statements from three state-backed organisations, earlier this week, that warned that digital currencies were not “real”, should not be used for purchases, and could face further regulatory changes from banks and other authorities.

The threatened crackdown also came amid a governmetn report in Hong Kong that indicated that cryptocurrency exchanges will have to be licenced by its markets regulator, and that only professional investors should be able to use them.

Dozens of cryptocurrency exchanges operate in Hong Kong, including some of the world’s largest. The city currently has an “opt in” approach under which exchanges can apply to be licenced by markets watchdog the Securities and Futures Commission, but do not have to.

Hong Kong’s Financial Services and the Treasury Bureau (FSTB) has been consulting the market on changes to those rules since last year.

The FSTB said on Friday in its consultation conclusions all virtual asset (crypto currency) exchanges should be licensed if they wished to operate in Hong Kong.

It also said “confining the services of a VA exchange to professional investors.... is appropriate at least for the initial stage of the licensing regime.”

The US also indicated that it would be increasing regulation of digital currencies, with new changes intended to to ensure that Americans are not able to use them to get around taxes.

The Treasury Department issued a report Thursday that outlines measures. Among the proposed changes, businesses that receive “cryptoassets” with a fair market value of more than $10,000 would have to report it to the IRS. That’s something businesses already have to do when with cash transactions of $10,000 or more.

The report explains that while the share of business transactions that involve cryptocurrency remains small, the new reporting requirement is necessary to discourage businesses from concealing such transactions from the IRS in the future.

The report notes that cryptocurrency “already poses a significant problem by facilitating illegal activity broadly, including tax evasion.”

Additional reporting by agencies

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