Banking regulators in China have banned financial institutions, including banks and payments companies, from providing services related to cryptocurrencies.
The move, coupled with comments from Tesla founder Elon Musk creating confusion as to whether Tesla had shed its bitcoin holdings, sent shares of bitcoin and other cryptocurrencies into a steep slide. Reuters reported.
On the Coinbase crypto exchange, bitcoin fell from $45,586 early on May 18, Eastern time, to as low as $38,555 shortly before midnight the same day. Bitcoin had partially recovered, to $41, as of 5 a.m. today (May 19).
The joint statement from China Internet Finance Association, China Banking Association and China Payment and Clearing Association reads, in part, as translated by Google’s online translation tool: “Financial institutions, payment institutions and other member units must earnestly strengthen their social responsibilities. They must not use virtual currency to price products and services, underwrite insurance businesses related to virtual currencies or include virtual currencies in the scope of insurance liability, and must not directly or indirectly provide customers with other services.
“Services related to virtual currency, including but not limited to: providing customers with virtual currency registration, trading, clearing, settlement and other services; accepting virtual currency or using virtual currency as a payment and settlement tool; developing virtual currency exchange services with RMB and foreign currencies; Develop virtual currency storage, custody, mortgage and other businesses; issue financial products related to virtual currency; use virtual currency as investment targets for trusts, funds, etc.”
Reuters reported that the selloff in bitcoin and other cryptocurrencies comes amid growing sentiment that they might not be as useful a hedge against inflation as once thought.
Analysts at JP Morgan recently wrote that there’s evidence investors are returning to traditional inflation hedges such as gold, Reuters reported, quoting them as having told clients, “The steepest and more sustained liquidation” in bitcoin futures since October appears to be underway. “The bitcoin flow picture continues to deteriorate and is pointing to continued retrenchment by institutional investors.”