Bitcoin stalls as US and China chase cryptocurrencies

Bitcoin was exposed to one of the most stringent regulatory crackdowns in its short history in the third quarter, blocking traders’ attempts to withdraw digital currencies from a sudden spring sellout.

Governments in the world’s two largest economies were directly targeting the Bitcoin and crypto markets. In the United States, institutions such as the Securities and Exchange Commission have pledged to crack down on this sector. The Treasury has produced a report on stablecoin, a digital currency that advertises a fixed value on the dollar, and is concerned about its potential to cause problems in both the crypto and traditional markets. And powerful US Senator Elizabeth Warren (D., Massachusetts) has emerged in Congress as a critic of cryptocurrency voices.

China has gone further. The country has banned Bitcoin and cryptocurrencies. Bitcoin “minor” companies, primarily in China, who operate the computers that actually run the network, have been forced to leave the country. An online exchange for Chinese citizens who have moved abroad after the previous ban has stopped or soon after they have stopped accepting new customers from China.

Chinese crypto miners have turned off their machines after warning that Beijing will tighten control of the industry. This created opportunities for miners elsewhere, as the forces behind the crypto are less dependent on one location.Photo Illustration: Sharon Sea

All of this affected the price of Bitcoin. At the beginning of the third quarter, digital currencies continued to fall, beginning after their price peaked at a record $ 63,381 set on April 15.

By mid-July, Bitcoin began to recover when prices fell below $ 31,000. Profit stagnated, Bitcoin was around $ 41,000, up about 17% quarterly.

Still, regulatory pressure prevented the rally from proceeding any further. Bitcoin regained the $ 50,000 level at some point, but only abandoned the ground because China imposed a ban.

Therefore, at current levels, Bitcoin is about one-third below the April record.

“This is probably one of the most fascinating 90-day periods to date,” said Bill Barhydt, co-founder and CEO of crypto trading services company Abra.

Other ciphers were also mixed quarters. Ethereum, the home currency of the Ethereum network, rose about 24% to $ 2,820 in the quarter. However, it is down about 29% from the quarterly high of $ 3,952 set on September 5. Meanwhile, meme traders’ favorite Dogecoin has fallen from 25 cents on June 30th to 20 cents on September 29th.

Regulatory pressure has also weakened momentum in other ways. The number of daily transactions on the Bitcoin network has dropped from about 175,000 to 200,000. According to data from research firm Glassnode, this is about the same as the level of the Bitcoin bear market in 2018, well below the highs of over 300,000 earlier this year.

While regulatory crackdowns are a direct factor influencing prices, quarterly action seemed to fit into Bitcoin’s clear boom bust cycle. Bitcoin prices rose to about $ 1,100 in 2013 and then fell 87% by 2016. Prices rose to nearly $ 20,000 in 2017 and fell 84% over the next year.

Lukas Enzersdorfer-Konrad, Chief Product Officer of European crypto broker Bitpanda, said the cycle seems to be repeating again.

According to him, it is the adoption rate that drives these phases of cryptocurrencies. The momentum stage attracts new people. This raises prices and eventually overheats small markets. While markets and industries absorb new growth, it leads to a “cool off” phase.

According to Enzersdorfer-Konrad, the market seems to be returning from a dull phase to an “accumulation” phase. If so, Bitcoin can last up to a year for this type of rangebound transaction.

The other corners of the crypto market, which had a little more life during the quarter, had fallen by the end of September.

According to the website DeFi Pulse, the total amount of the so-called DeFi sector (a collection of financial services such as banks related to cryptocurrencies) has fallen from a record high of $ 97 billion in early September to about $ 81 billion.

Sales of NFTs, or non-fungible tokens, also increased or decreased during the quarter. These are unique Bitcoin-like digital tokens that often represent digital artwork and other real-world assets.

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According to data site NonFungible.com, NFT sales hit a high of about $ 267 million on August 29th. This is up from just $ 2.4 million on June 30th. However, September sales fell sharply. Sales on September 27 totaled $ 18 million.

One group of investors is still bullish: venture capitalists. Cryptocurrency companies raised a record $ 7.5 billion in the third quarter, according to data from research firm PitchBook. That’s more than the $ 5.3 billion raised in 2020 as a whole, and the previous record of $ 7 billion raised in the first quarter.

That’s why Abra’s Barheit remains optimistic. He believes that the current market suspension can be short-lived. “We don’t think it’s over,” he said. “You will see another explosive move in cryptocurrencies.”

Bitcoin, Dogecoin, Tether: Cryptocurrency Market

Write to Paul Vigna (paul.vigna@wsj.com)

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