Bitcoin tumbles below $40,000 after China issues warning

Bitcoin fell below $40,000 for the first time in more than three months on Wednesday, after China announced that cryptocurrencies would not be permitted in transactions and cautioned investors against risky trading in them.

The comments took the unit down more than 10% and dealt it another blow shortly after comments from tycoon Elon Musk and his Tesla car company battered it.

Trading of cryptocurrencies has been prohibited in China since 2019 to avoid money laundering as leaders attempt to prevent people from moving money abroad. The nation had accounted for roughly 90 percent of global trade in the field.

In a release, the National Internet Finance Association of China, the China Banking Association, and the Payment and Clearing Association of China said that “cryptocurrency prices have skyrocketed and collapsed, and cryptocurrency trading speculation activities have rebounded.”

The price fluctuations “seriously violate people’s asset safety and disrupt normal economic and financial order,” according to the People’s Bank of China statement, which was shared on social media.

The notice cautioned consumers against rash betting, adding that “losses incurred by investment transactions are borne by the consumers themselves,” since Chinese law provides little cover for them.

It reiterated that providing cryptocurrency services and crypto-based financial products to customers was illegal for Chinese financial institutions and payment providers.

Bitcoin fell from $45,600 to $39,240 on Wednesday, its lowest level since early February and well below the record high of $64,870 set just a month ago. Analysts also cautioned that it could fall as low as $30,000.

“This is the latest chapter in China tightening the noose around crypto,” said Antoni Trenchev, managing partner and co-founder of Nexo, a London-based crypto lender.

“It’s no surprise to me,” said Adam Reynolds of Saxo Markets, “as Chinese capital controls can be challenged by cryptocurrency transactions in the country and transfers out of the country.”

“As a result, preventing their use in the country is critical to preserving capital controls.”

Bitcoin has had a tumultuous few days. It took a significant hit at the start of the week after Musk seemed to imply that Tesla planned to sell its massive holdings in the unit. This comes just days after the electric vehicle manufacturer announced that it would stop using it in transactions due to environmental concerns.

China is amid a broad regulatory crackdown on its fintech industry, with major companies such as Alibaba and Tencent facing large fines after being found guilty of monopolistic practices.

The central bank has also attempted to promote its own highly controlled digital yuan, testing in pilot schemes across the country.

Consumers still use mobile and online payments, but the digital yuan could provide the central bank with greater data and influence overpayments rather than the big tech giants.

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