Bitcoin Stalls as US, China Go After Cryptocurrency

The governments of the world’s two largest economies have taken direct attacks on bitcoin and the cryptocurrency market. In the US, agencies such as the Securities and Exchange Commission have promised action on this area. The Treasury Department is preparing a report on stablecoins—digital currencies that defy fixed values ​​to the dollar, amid concerns about their potential to cause problems in both the crypto and traditional markets. And powerful US Sen. Elizabeth Warren (D., Mass.) has emerged in Congress as an outspoken critic of cryptocurrencies.

China went further. The country banned bitcoin and cryptocurrencies. Bitcoin “miners,” companies based largely in China that actually operate the computers running the network, were forced to leave the country. Online exchanges for Chinese citizens who moved offshore following prior sanctions or will soon stop accepting new customers. China.

All this had an effect on the price of bitcoin. At the start of the third quarter, the digital currency continued to decline, having started after its price hit a record high of $63,381 on April 15.

By mid-July, bitcoin started to rally with the price falling below $31,000. The gains stuck and bitcoin, around $41,000, is up about 17% for the quarter.

Yet regulatory pressure prevented the rally from progressing further. Bitcoin reclaimed the $50,000 level at one point, only to leave the ground as China imposed its embargo.

Therefore, at current levels, bitcoin is down by almost a third from its April record.

“It’s probably one of the most lucrative 90-days we’ve had,” said Bill Barhide, co-founder and chief executive of crypto-trading services firm Abra.

Other cryptos also had a mixed quarter. Ether, the native currency of the Ethereum network, rose nearly 24% in the quarter to $2,820. But it’s down about 29% from the quarter’s high of $3,952 on Sept. 5. Meanwhile, Dogecoin, a favorite of meme traders, fell from 25 cents on June 30 to 20 cents on September 29.

Regulator pressure reduced speed in other ways as well. The number of daily transactions on the bitcoin network has dropped from around 175,000 to 200,000. According to data from research firm Glassnode, this is on par with the 2018 bitcoin bear market level and well above the highs above 300,000 earlier this year.

While regulatory action is an immediate factor influencing prices, quarterly actions also fit within bitcoin’s distinct boom-bust cycles. In 2013, the price of bitcoin rose to $1,100, then fell 87% by 2016. In 2017, the price rose to around $20,000, then fell 84% in the following year.

The cycle seems to be repeating itself, said Lukas Engersdorfer-Konrad, chief product officer of European crypto broker Bitpanda.

What is the rate of adoption of these steps in crypto, he said. The momentum phase attracts new people. This pushes the price higher, which eventually overheats the smaller market. This leads to a “cool off” phase while markets and industries absorb the new growth.

The market looks like it is out of a momentum phase and back into an “accumulation” phase, said Mr Enzersdorfer-Konrad. If so, then bitcoin could be in for another year of such rangebound trading.

Other corners of the crypto market had a little more life during the quarter, only to fall by the end of September.

According to the website DeFi Pulse, the total amount in the so-called DeFi space—a collection of bank-like financial services tied to cryptocurrencies—has fallen from a record high of $97 billion in early September to nearly $81 billion.

NFTs, or non-fungible token sales, also rose and fell during the quarter. These are unique, bitcoin-like digital tokens that often represent digital artwork or other real-world assets.

According to data site NonFungible.com, NFT sales hit an all-time high of about $267 million on August 29. That’s up from just $2.4 million as of June 30. However, sales declined sharply in September. As of September 27, sales totaled $18 million.

One group of investors remains bullish: venture capitalists. According to data from research firm Pitchbook, crypto companies raised a record $7.5 billion in the third quarter. This is higher than the total of $5.3 billion raised in 2020 and $7 billion raised in the first quarter, the previous record.

Trends like this are the reason why Abra’s Mr. Barhide is still optimistic. He feels that the current market halving may be short-lived. “I don’t think we’re done,” he said. “You’re about to see another explosive move in crypto.”