Prices of bitcoin and other cryptocurrencies tumbled on Wednesday after the Chinese government imposed fresh curbs on banks’ use of digital money, further fueling concerns sparked by tweets of Tesla CEO Elon Musk.
Bitcoin, the world’s most widely traded cryptocurrency, plummeted 30% to its lowest level since late January on Wednesday, at one point bottoming out at roughly $30,000. Ether, the main coin that powers the Ethereum blockchain network, finished 26% lower at $2,356 after previously dipping below $2,000. Dogecoin, a cryptocurrency that started as a joke, dropped 27% to about 35 cents after plunging as low as about 22 cents.
Three Chinese financial industry associations stepped up their crypto crackdown on Tuesday by directing their members, which include banks and online payment firms, not to accept virtual currencies for payment or provide crypto-related services, such as registration, trading, clearing and settlement.
“Recently, cryptocurrency prices have skyrocketed and plummeted, and speculative trading of cryptocurrency has rebounded, seriously infringing on the safety of people’s property and disrupting the normal economic and financial order,” the three industry bodies expressed in a statement released by China’s cental bank.
Authorities in the country have issued other restrictions on cryptocurrencies in the past. In 2013, China barred financial institutions from from handling bitcoin transactions. In 2017, China’s central bank declared initial coin offerings illegal and shut down local cryptocurrency exchanges. However, Chinese citizens are still allowed to hold cryptocurrencies.
More than $250 billion evaporated from the bitcoin market last week alone, according to CNBC. The brutal bitcoin sell-off began after Elon Musk reversed his pledge to accept bitcoin as payment for Tesla vehicles on Twitter, citing concerns over its carbon footprint. Since then, the market value of bitcoin has fallen from more than $1 trillion to about $750 billion. In a tweet on Wednesday morning, Musk said that Tesla had “diamond hands,” implying that the company would not be selling its $1.5 billion stake in bitcoin.
Various spectators have been predicting a bitcoint sell-off for months, pointing out that the digital coin holds no intrinsic value. The European Central Bank has compared the surge in bitcoin prices to notorious financial bubbles throughout history, including the Dutch “tulip mania” of the 1600s and the British South Sea bubble of the 1700s.
The price of bitcoin is still up more than 200% since September. The dramatic rise is partially driven by a trend where public companies and banks are converting their cash treasuries into bitcoin and providing related services, which has added more merit to the digital currency as a store of value. However, the market reaction to China’s new crypto bans shows that bitcoin and other cryptocurrencies are still volatile and sensitive to regulatory efforts.