Overnight, a broad selloff of prominent cryptocurrencies has vaporized billions of dollars in value. Bitcoin, the largest cryptocurrency affected, is off more than 18 percent in the last 24 hours. Currently, it’s worth just over half what it was in mid-April. Over the past week, more than $600 billion has been wiped out of a wide range of more than 7,000 cryptocurrencies, including bitcoin, ether, and meme coins like dogecoin, according to CoinGecko.
The causes for the selloff are myriad. The first shot across the bow came last week when Tesla CEO Elon Musk declared that his company would no longer be accepting bitcoin for car purchases. The change happened less than two months after he said that Tesla would accept bitcoin, and the about-face came as Musk said he is concerned about the environmental damages being wrought by the energy-intensive cryptocurrency. (His thinking on the matter may have been influenced by an Ars article about a private equity firm that revived a zombie power plant just to mine bitcoin.)
The next jolt to crypto markets came this past Sunday when Musk suggested that Tesla either had sold or would be selling its bitcoin holdings, which amounted to $1.5 billion when they were disclosed back in early February. Musk’s market-moving tweet was a cryptic “Indeed” posted in reply to @CryptoWhale, who had said, “Bitcoiners are going to slap themselves next quarter when they find out Tesla dumped the rest of their #Bitcoin holdings.” That single word sent bitcoin tumbling. On Monday, Musk clarified that “Tesla has not sold any Bitcoin.” After that, the cryptocurrency regained some of its value.
The rally was short-lived, though. On Tuesday, China issued a warning that financial institutions in the country shouldn’t process or participate in crypto-transactions or offer related services. “Prices of cryptocurrency have skyrocketed and plummeted recently, and speculative trading has bounced back. This seriously harms the safety of people’s property and disturbs normal economic and financial orders,” the regulators said in a statement.
China has tried to tamp down speculation on cryptocurrencies before. In 2017, the country shuttered local cryptocurrency exchanges, and in 2019, the Chinese central bank said it would ban domestic and foreign exchanges and websites with initial coin offerings. At the time, some 90 percent of all transactions occurred in China. Earlier this year, the regional government in China’s Inner Mongolia province announced a ban on cryptocurrency mining by the end of April. Before the ban, 8 percent of all bitcoin mining was estimated to occur in the province, which has cheap power due to massive amounts of coal production.
Despite China’s frosty stance toward bitcoin, around three-quarters of all mining occurs in China. The coin’s massive electricity use—estimated to be about as much as the entire country of Egypt—is not helping China meet its goals for reducing greenhouse gases. A recent study said that without intervention, bitcoin mining in the country would contribute 130.5 million tonnes of carbon dioxide at its expected peak in 2024.
Cryptocurrencies have come under increasing scrutiny by regulators and law enforcement in the US, too. In the wake of the Colonial Pipeline malware attack, news leaked that crypto-exchange Binance was under investigation by the Department of Justice, the Internal Revenue Service, and the Commodity Futures Trading Commission.
The crypto bubble began inflating in early 2020 and took off late last year as the market for derivatives took hold and institutional investors began to devise bitcoin strategies. Large firms like Fidelity Investments began offering custodial services to select clients. At the peak, around $2.5 trillion were invested in cryptocurrencies of various flavors, with a significant portion in bitcoin.
Today’s bitcoin plunge is spreading to equities markets as well. Major bitcoin holders, including Tesla, are down in early trading.