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The value of bitcoin dropped by almost 5.8% and Dogecoin prices fell by around 26% yesterday (June 21) after the Chinese government clamped down on cryptocurrency mining in the country – with the impact now rippling across the crypto market.
Bitcoin prices tumbled by almost 10% on Monday as recent volatility in the cryptocurrency market showed no signs of dampening down, with market players citing jitters over China’s expanding crackdown on bitcoin mining in thin liquidity for the losses.
The world’s biggest cryptocurrency, long plagued by volatility, has lost over 20% in the last six days alone and is down by half from its April peak of almost $65,000.
The drop comes amid a growing crackdown on cryptocurrencies in China, where authorities in the southwest province of Sichuan on Friday ordered bitcoin mining projects to close.
The State Council, China’s cabinet, last month vowed to clamp down on mining and trading as part of a series of measures to control financial risks.
While data on mining is scarce, production of bitcoin in China accounted last year for about 65% of global production, according to data from the University of Cambridge.
Sichuan is its second biggest producer.
“(The) crackdown on Chinese miners might mean that they are offloading coin into a thin market and taking us lower,” said Ben Sebley of London-based crypto firm BCB Group.
China’s central bank said on Monday it had summoned some banks and payment institutions recently, urging them to crack down harder on cryptocurrency trading.
Agricultural Bank of China (AgBank), China’s third-largest lender by assets, said separately it was following the People’s Bank of China’s guidance and would conduct due diligence on clients to root out illegal activities involving crypto mining and transactions.
Companies that mine bitcoin – an energy-intensive process – typically hold large inventories of the cryptocurrency, with any moves to sell large amounts depressing prices.
Cryptocurrency mining describes the process whereby bitcoin, or similar coins like Ether, Tether or Dogecoin, are given to users as a reward for solving computational puzzles to verify and validate ‘blocks’ of transactions.
These are then added to a blockchain, helping to increase its value through clean, valid transactions, with miners rewarded for doing so with cryptocurrency.
As a decentralised network and form of currency, the lack of banks and infrastructure to authenticate transactions and exchanges means that mining is essential to the functioning and value of any cryptocurrency.
So clampdowns by state authorities on the activity – especially in countries where lots of mining takes place – will cause drops in the price and value of bitcoin. TheScotman
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