Cryptocurrencies were broadly down on Tuesday afternoon with dogecoin (DOGE) plunging as much as 26% as China’s regulatory crackdown continues to take a toll.
The joke token was trading at $0.19 (£0.14), its lowest since April when it climbed to $0.7. It had earlier surged on support from Tesla (TSLA) CEO Elon Musk and after cryptocurrency exchange platform Coinbase announced it will begin accepting inbound transfers of the crypto.
"What is happening now shouldn’t be a sign of worry and if the recent news is anything to go by, it shows a pattern of dogecoin soaring and diving, sparked by social media," CEO of online trading platform Skilling Michael Kamerman told Yahoo Finance UK.
"Whether or not it goes up or down from here is anyone’s guess but the cryptocurrencies that seem the most volatile to plunges like we’ve seen recently are those not backed by too many real-world use cases like dogecoin," he added.
“With the fallout from greater institutional investor scrutiny over bitcoin/crypto volatility, governmental risks and leveraged liquidations, dogecoin naturally will fall harder and at greater amplification because of its proudly branded zero intrinsic value as an asset class," said Eric Schiffer, CEO of private equity firm The Patriarch Organization.
Meanwhile Kamerman noted that "with China’s crackdown on cryptocurrency, the ripple effects are being felt by all digital currencies."
The People's Bank of China has encouraged Alipay and other large institutions to crack down on cryptocurrency trading, which is one reason for the sell-off. And the country extended the clampdown on the bitcoin mining industry to its biggest bitcoin producing provinces, including the southwest province of Sichuan.
Bitcoin (BTC-USD) plunged 8% to trade at $30,402. At one point it had fallen below the $29,000 mark, erasing all gains it had made so far in 2021.
Ethereum (ETH-USD) – the second biggest crypto by market cap – was down 10% and was trading at $1,803.
Despite this, “investor confidence in cryptocurrencies is growing,” said Naeem Aslam, chief market analyst at Ava Trade.
“This is backed up by institutional investors, who are working to diversify their product portfolios in order to provide their clients with access to bitcoin," he said, adding that surveys show a growing number of hedge fund managers are willing to devote nearly 10% of their portfolio to cryptocurrencies.
And Stephen Kelso, head of markets at ITI Capital said: "Given the market forces and demand for scarcity assets to protect wealth, ITI believes this is an attractive buying opportunity for investors."
"This is evidenced by the growing absorption of BTC by larger institutional wallets during sell-offs."
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Reportedly, numerous bitcoin mines in Sichuan were shut down after China put a stop to crypto mining. About 60% of all the world's currently circulating bitcoins are estimated to be mined in China.
"China has clamped down on bitcoin previously in 2013 and 2017 as well as this year. As with similar clampdowns on US mega-tech companies, it has not checked the advance," said Kelso.
Industry experts said the crackdown would likely have a short-term effect on mining capacity and prices but would likely just drive miners to relocate, rather than exit the industry. Some believe this could encourage more mining capacity to move to the West.
The crypto slump began late last week after the US Federal Reserve brought forward the timeline for future interest rate hikes, raising the prospect that cheap money may disappear sooner than expected.
"It seems that investors may be re-assessing the likelihood of potentially higher rates and the impact on asset classes, crypto assets being no exception," Kaia Parv, head of investment research at FXPrimus told Yahoo Finance UK.
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