Bitcoin drops below $30,000 as relentless China crackdown weighs

© Reuters. A representation of the virtual cryptocurrency Bitcoin is seen in this picture illustration taken June 14, 2021. REUTERS/Edgar Su/Illustration

By Gertrude Chavez-Dreyfuss, Tom Wilson and Alun John

NEW YORK/LONDON/HONG KONG (Reuters) - Bitcoin on Tuesday fell below $30,000 for the first time since January, briefly erasing gains for the year and adding to losses sparked a day earlier when China's central bank deepened a crackdown on cryptocurrencies.

The world's largest cryptocurrency dropped to $28,600, its lowest since early January, after giving up gains made during Asian hours. Its fall also pressured smaller coins such as ether.

Bitcoin tumbled 11% on Monday, its largest one-day drop in over a month, with losses of nearly 30% in the last week alone almost wiping out gains for the year-to-date. It was last down 2.3% at $30,896.

The sell-off was sparked by the People's Bank of China urging China's largest banks and payment firms to crack down harder on cryptocurrency trading, the latest tightening of restrictions on the sector by Beijing.

"The underlying fundamentals of the crypto-asset world have not changed and this correction was more of a when, not if," said Iqbal Gandham, vice president of transactions at Ledger, a digital asset management solution.

"Any asset class which sees a meteoric rise in the same way as we have seen in crypto is expected to correct. The situation in China has perhaps exacerbated this, along with the increased rate of adoption of altcoins by new users, following tweets of various crypto personalities."

Crypto exchanges were effectively pushed out of China by a 2017 rule change, but over-the-counter platforms based overseas have sprung up to receive payment from people based in China and buying cryptocurrencies on their behalf.

After Monday's PBOC statement, banks including Agricultural Bank of China (OTC:ACGBF) and Ant Group's ubiquitous payment platform Alipay said they would step up monitoring to root out crypto transactions.

Bitcoin has plummeted more than half from its April peak of almost $65,000. Year-to-date, it remains up about 4.7%.

Ether, the token used for the Ethereum blockchain and the second-largest cryptocurrency, fell 4.5% to $1,801. It dropped to $1,700, its lowest in a month.

HASH RATE TUMBLES

Last month, three industry associations issued a similar ban on crypto-related financial services, though market players said it would be hard to enforce as banks and payment firms could struggle to identify crypto-related payments.

"China's iron-fist ban on crypto seems to be more serious than back in 2017 as the directive came straight from the top," said Anthony Wong of Hong Kong-based crypto firm Orichal Partners."

Beijing's targets are cryptocurrency miners, but China's State Council, or cabinet, said last month it would tighten restrictions on producers as well as traders of bitcoin.

Authorities in major bitcoin mining hubs including Sichuan, Xinjiang, and Inner Mongolia have issued their own curbs with greater details on the restrictions.

Iran in late May banned the energy-intensive mining of cryptocurrencies like bitcoin for nearly four months, as the country faces major power blackouts in many cities. On Tuesday, state media reported that police have seized 7,000 computer miners at an illegal crypto farm, their largest haul to date of the energy-guzzling machines.

Evidence of the impact of the curbs is emerging. The so-called hash rate of the bitcoin network - a measure of its processing power that shows how much mining is taking place, on Monday hit its lowest level since late 2020.

The crackdown on miners will likely hit prices in the short-term, market players said.

"Some of the miners in China may be more willing to sell their bitcoin now versus when they are able to run their mining operations because they have to raise cash," said Seth Melamed, of Tokyo crypto exchange Liquid.