Trading in Bitcoin has been frenetic today with news that the Chinese government has ordered trading in the currency to cease. The authorities have long been concerned about the rise of cryptocurrency and this announcement about Bitcoin is not totally unexpected. Even though other governments around the world have expressed concerns it is the intervention of the Chinese authorities, with nearly 25% of Bitcoin trades carried out in China, which has hit the currency hardest.
Frenetic trading
As investors looked for an alternative modern day currency in light of the 2008 worldwide crisis, the likes of Bitcoin came to the fore. Trading in the currency was brisk today and at one point it was down 40% from its $5000 high seen earlier this month. While the currency reached a low of $2972 on Friday it did recover to just under $3600 by afternoon trade. The fact that Beijing has decreed that cryptocurrency exchanges will need to stop trading Bitcoin by midnight on 15 September could mean yet more trouble in store.
In many ways the volatility of Bitcoin has been a massive attraction for many investors looking to effectively day trade the currency. When you bear in mind the volatility we have seen this month, aside from the fact it has increased by over 700% over the last 12 months, this must be a traders dream but they must have nerves of steel!
Is this the end of Bitcoin?
There is no doubt that today’s announcement by the Chinese government is a bitter blow to the cryptocurrency. This comes amidst a restructuring of the whole sector with various splits in cryptocurrencies such as Bitcoin in the offing. It looks as though renewed interest from investors, the continuous rise of the currencies and governments inability to control trade has prompted Beijing to step in.
We have covered the issues concerning Bitcoin in earlier articles with money-laundering and criminal activity a major problem. It is also possible to trade Bitcoins anonymously which effectively negates the billions of dollars spent by governments around the world in tightening money regulations to combat fraud, criminal activity and money-laundering in particular. So, in many ways it does look as though the Chinese government is getting its own back and no doubt other governments will follow suit. At this point it is worth noting that no government has ever adopted one of the so-called cryptocurrencies such as Bitcoin.
Criticism builds
Jamie Dimon, the chief executive of US bank JP Morgan, has also been very vocal about his distaste towards this currency. Only this week he used extremely descriptive terms suggesting that the digital currency was in fact “a fraud” and would “eventually blow up”. These may have been prophetic words from the head of JP Morgan but we will see how markets react in the short term.
The problem is that if governments around the world follow the Chinese lead then this will reduce the opportunities to trade Bitcoins. It will therefore reduce the potential customer base, trading volumes and undo much of the good work done over the last few years. Many experts had predicted this day for some time and perhaps the only surprise was that governments have not come down harder on so-called cryptocurrencies before now. In a battle between investors and governments, who would you put your money on?