Crypto newsletter: China breaks Bitcoin

• Bitcoin gives back most of its gains in 2021
• China clampdown on mining and trading of cryptocurrencies
• US Treasury calls for stricter cryptocurrency compliance with IRS

The cryptocurrency market has another tragic week behind it. Volatility increased significantly reminding investors that crypto markets are not for the faint of heart. The declines deepened after  the Chinese government announced it wanted to suspend domestic cryptocurrency mining and trading digital assets due to ongoing efforts to prevent speculative and financial risks. This is a huge blow to the market considering that up to 50% of the computing power in the crypto market comes from China. As a result the entire cryptocurrency market has lost over $ 1 trillion in recent weeks and the current market capitalization dropped to $ 1.5 trillion, while an average daily trading volume is registered at $235 billion. Bitcoin's market dominance increased to 45%.

The total market capitalization fell sharply in recent days. Source: Coinmarketcap.com

China threatens to crackdown on crypto

While other factors played a role, the main reason behind the recent sell-off appears to be China's crackdown on bitcoin and cryptocurrency mining. The latest reports indicate that major mining mines such as BTC.TOP and HashCow will be suspended as a State Council committee chaired by Deputy Prime Minister Liu He announced its final clampdown on Friday. It is worth remembering, however, that the crypto market did not completely collapse after China banned the country's stock exchanges in 2017.

Nevertheless, there is still the possibility that the current situation is only a stop to further gains, unless there is a massive attempt by other countries to regulate the market. The United States is already considering such a move. The Department of Treasury is requesting the reporting of digital asset transfers of over $ 10,000 to the Internal Revenue Service saying crypto posed “a significant detection problem by facilitating illegal activity”. If further strict restrictions are introduced, then the entire market may be adversely affected. On the other hand, it may turn out that the regulations will not be so severe and will regulate many issues, which in turn will enable further development of digital assets.

Meanwhile, other countries are looking more favorably at the cryptocurrency market. The Indian government is looking to set up a new panel of experts to review the possibility of regulating cryptocurrency in the country, reversing the blanket ban on digital assets. Elsewhere Australian federal minister Jane Hume said the government has no objection to people investing in crypto assets, though she also warned of the risks.

May 19's price crash in the Bitcoin (BTC) spot market wiped about $7.56 billion worth of long-leveraged positions from cryptocurrency derivatives markets. Source: Bybt.com

Bitcoin price fell sharply last week and approached the 61.8% Fibonacci retracement of the entire upward move which started back in March 2020. At the moment downward momentum lost its steam and price broke above the local resistance at $34,500 which coincides with 50% Fibo retracement. As long as price sits above it, then upward correction may resume. On the other hand, if we see a break back below it, another downward impulse may be launched. Source: xStation5. 

Ethereum followed Bitcoin footsteps last week, however today buyers managed to find some support at $1800 level and price even broke above short-term trendline. If the current sentiment prevails, upward correction may be extended to the resistance at $2637. However one needs to remember that sentiment remains bearish and another downward move towards recent lows is possible. Source: xStation5