Bitcoin Selloff Worries Investors: China Crypto Ban Creates Terrifying Volatility

Last Updated on June 23, 2021

MyFinancialTimes is a reader-centric site. We may receive compensation from the products and services we mention or recommend in this story, but the opinions are the author's own. Remuneration may impact where offers appear. We may not include all available products or offerings. To learn more you can visit our advertising policy and editorial policy.

A huge Bitcoin selloff enabled some to say “we told you so,” but a turnaround later in the day let the bulls live to fight another day. The mother of the crypto family sold off Tuesday morning (June 22). The extraordinary volatility highlights not only Bitcoin’s own risk but the risks of the whole asset class. So should you buy or should you sell? 

A single token was valued at $32,854 at 8 a.m., London time. But the Bitcoin selloff was already underway. Its value was down more than $1k, to $31,764, two hours later. After that, for a time, the fall slowed: it had lost another $350 by 12:45.

A Serious Plunge

Then, just at 1 p.m., Bitcoin took a serious plunge. Over the next few minutes it fell below the psychologically significant $30,000, and it kept going, below $29,500 at 1:45. It had lost 10% of its value in less than six hours. It was at roughly 50% of its value compared to its highpoint of April. 

An optimist might have thought the plunges were complete. Indeed, bulls decided to buy at this point and they brought the crypto back up above $30,100 soon after 2 p.m. 

The bears in effect replied, “it ain’t over until we say it’s over.” Another selloff took us below $29,000 by 3:00 p.m. 

At 5:00 p.m., the bulls were firmly in charge, and the price was back above $31,750, quite near where it had been seven hours before. 

shutterstock 1121092838
Worries about the China crypto ban created huge volatility in the market. Photo credit: Shutterstock.com

What Happened?

This is the first time Bitcoin has been below $30,000 since January. What happened? The market worries, quite sensibly, about official hostility from the People’s Republic of China, which has recently curbed bitcoin mining, and the trading in the stuff by China’s financial institutions. 

There is a bit of a paradox here. Why is a PRC curb on mining, the creation of new tokens, bad news for the value of this crypto? Shouldn’t it be good news? After all, what China is curbing is the near-future supply of the stuff, a curb that arguably should increase its value.   

The answer is that buying bitcoin is betting on its future: betting that it will continue to grow as an asset class and, indeed, as a currency. Striking at mining undermines the plausibility of that vision. 

But most ominously there is the trading ban. China’s Central Bank announced Monday that it has summoned representatives of the country’s largest financial institutions to a meeting. On the agenda: how the banks can assist the Central Bank in seeing to it that China’s citizens don’t engage in bitcoin transactions.  

shutterstock 687484867
Buying bitcoin is betting on its future: betting that it will continue to grow as an asset class and, indeed, as a currency. Photo credit: Shutterstock.com

Is There Still Hope?

Jim Cramer, host of the influential television show Mad Money, is of the dump-Bitcoin persuasion. He doesn’t believe the anti-Bitcoin moves from Beijing are done. The leaders of the PRC consider cryptos  “a direct threat to the regime because what it is, is a system that’s outside their control.”

Outside Beijing’s hostility there are other reasons to worry. Bitcoin has become the go-to medium of payment for ransomware attackers. And other governments around the world, including that of the United States, are looking to fight such attacks. This suggests that they, too, may go after the medium in order to get across their message. 

Yet there is still longer-term cause for hope for the cryptos in general, and for Bitcoin, in particular. One of these causes is generational. Surveys indicate that the people most likely to invest in bitcoin are younger than those who are most wary. The millennials will be amassing wealth and deciding where to put it over the next decade, and they may put a lot of it into blockchains.

The bottom line may be: if you have the money to spare, and you are willing to wait out months of wild ups and downs, ransomware diplomacy, Elon Musk, and whatever comes next, then Bitcoin remains an intriguing opportunity.