Bitcoin Sinks Below $7000 on China Crackdown

-edited

Bitcoin fell below the $7,000 mark on Sunday for the first time since May.

Digital currencies were hammered this past week on fears of a China crackdown. For the first time in six month, Bitcoin slumps below the $7,000 mark.

The recent tumble is being attributed to China’s recent announcement that it will crack down on crypto trading. A statement by the People’s Bank of China on Friday warned it was increasing “supervision and control to combat virtual currency transactions.”

“Investors should be careful not to mix blockchain technology with virtual currency,” the central bank said, warning of the many risks of cryptocurrency trading.

There has also been speculation in recent months that China is preparing to launch a state-run digital currency, though the PBoC denied such a report earlier this year.

Warning Shot

This is precisely one of the things I have warned about on numerous occasions.

If and when central banks crack down on digital currencies it will be lights out.

People keep asking me what can central banks do. The question should not come up as the answer is obvious: ban transactions in Bitcoin.

If the US banned bitcoin transactions, people would still have their digital coins, but they would effectively be worthless. One could not buy anything with bitcoin other than barter transactions. There would be no way to get money in or out, at least in the US.

Look at the problems Iran is having with its oil.

Similar things would happen to Bitcoin.

We are not at that stage yet, and I hope we never get there. But China just fired a warning shot.

If Central Banks Feel Threatened

If central banks feel threatened, they will shut down cryptos.

I do not believe the Fed feels threatened yet.

By its statements and actions, China does feel threatened. What's the concern?

Capital Flight

People can get money out of China by converting to Bitcoin, then going to Hong Kong, Japan, or the US and cashing out.

China wants to put an end to capital flight via Bitcoin.

Thus, people are playing with fire here.

Technical Support Levels

Bitcoin is right at technical support. If this level breaks, and I believe it will, the next support is at or near the $3500 level or so.

If that level breaks, and ultimately I believe it will, look for a plunge to the $2000 level.

King Dollar

As a key aside, that China has to resort to capital flight controls is telling. Forget the Yuan: King Dollar is Here to Stay.

Wake me up when China floats the Yuan, gets rid of capital controls, has enforceable property rights, and has the world's largest bond market.

Those are all requirements of having the world's reserve currency.

Mike "Mish" Shedlock

Comments (40)
No. 1-12
Felix_Mish
Felix_Mish

Long term, it seems clear that cash has become too important to be operated by nation states.

Humans have accepted nation-states policing both physical and digital counterfeiting. But the world is marching on. If any of several nation states drop the ball now, humanity gets another world war or plague in catastrophic effect. So, if the crypto guys come up with a workable scheme that erases the need for anyone to police counterfeiting and simple digital fraud, what then?

(Note: Bitcoin, itself, is not a "workable scheme". Also note: A "workable scheme" would not stop digital fraud in general. Just important types of such fraud.)

leicestersq
leicestersq

Doesnt the crackdown in China underline the fact that there is something to bitcoin? If the state is willing to put resources into trying to eradicate it, then perhaps there is more to it that meets they untrained eye.

Nation state's often try to ban things, but they dont always succeed. I know that Mish has often railed against state intervention such as price fixing. Mish is quite right to do so, price fixing causes economic imbalances and you end up with either too much supply or no supply according to where you have fixed the price. In the end the market takes control and makes state legislation moot.

If Bitcoin is to be destroyed, it wont be because of state intervention, it will be because the market doesnt want it. Short term nation states can impact on the value of bitcoin, longer term I dont think that they can, and expending resources against something the public wants is never a good idea. Better to pull back and let the market do its work one way or another.

Realist
Realist

Curious. You are making the assumption that governments/central banks can crack down on crypto-currencies, thus rendering them worthless. Is it also possible for governments/central banks to crack down on the use of gold as a currency, thus rendering it worthless as well? Are both scenarios not possible?

ReadyKilowatt
ReadyKilowatt

The 20th century will be remembered as the time of the relative universe. The 18th and 19th centuries were all about stability, repeatable experiments and absolutes. The gold standard (and to a lessor extent bimetallism), said that a dollar in your pocket today would buy the same thing tomorrow.

Then came the scientific revolution brought to the mainstream through Einstein, that the passage of time depends on your perspective, and that caused armchair intellectuals and other lightweights to believe that applied to everything. God was killed, the vacuum replaced by the state. Everything soon became whatever the individual perceived it to be. The message and media intertwined. And there was no room for an absolute currency. Any attempts to create one will be thwarted by those who believe the dogma of relativism über alles. Standards are a creation of man, so they must be destroyed in order to bring about a novus-paradise. And because every man is the standard barer every man decides what is a violation of the standard.

But I have to go to work now...

Bam_Man
Bam_Man

60% loss of "value" in just under two years. And some people still refer to this as "money". LOL....

ksdude69
ksdude69

There's only one way to break free from the bankers and govt and it involves a lot of blood. I dont know why people dont understand that crap passed back and forth on the computer cant be shutdown.

Sechel
Sechel

Posted this three days ago. The story isn't why its going down, but why it was up in the first place.

numike
numike

American kids want to be youtubers, and the Chinese kids want to be astronauts. https://twitter.com/andrewchen/status/1151496486028488705

CautiousObserver
CautiousObserver

"Is it also possible for governments/central banks to crack down on the use of gold as a currency...?"

@Realist: No doubt you are pointing out to Mish that his faith in gold is almost as irrational as HODL'ers believing in bitcoin.

Regarding governments/banks cracking down on the use of gold as currency, I submit to you that it has already been done. The futures market sets the price of gold despite physical not necessarily changing hands. Any gains in gold relative to the dollar are taxed as a collectible (a higher tax rate than capital gains earned from other long term financial speculation), so if one does manage to make gains despite the managed gold price, then one gets hit with extra taxes on the gains.

Given that arrangement, I expect the only way gold will have a massive price increase relative to the US dollar is if the US dollar hedgemony looks like it is going to collapse soon. In that case, I imagine the currency that replaces the dollar will be gold-backed (at least temporarily). Because of its history, gold is still the universal IOU when nobody's paper IOU is good enough.

This dollar crises scenario is not going to happen as long as western governments and central banks of the world do not navigate themselves into a corner that they cannot write themselves out of with either money printing or changes to the law. Someday that day is certain to happen, but it is damn difficult to get the timing right. Will it happen next year? In the next decade? Longer? Pretty soon one is contemplating the significance of Keynes's statement, "In the long run we are all dead" where he was making the point that good decisions with respect to the near future should be given substantially more weight than nebulous decisions with respect the long term.

I have to agree with you that gold is a difficult play.

Maximus_Minimus
Maximus_Minimus

Bitcoin as a currency? That train has already passed. It can be used for shady business dealing between willing parties that accept some loss as is the case with money laundering. The bitcoin crowd destroyed it nicely by running up its value, then crashing it.

It's quite enough to keep up with the counterfeiting operations run by the central bankers. Both central banking fiat and bitcoin have no inherent value, and no relations to the economy.

Gold's value is as a bedrock of the monetary system, not a medium of exchange. It puts the brakes on central banking shenanigans of printing money out of thin air, or waging this last ditch battle to end all battles.