The crypto world right now is in the throes of turmoil. News coming from around the globe is gloomy. Bitcoin price has crashed to a new low of $30 k, wiping out some $500 bn from its market cap. Ethereum, which tends to mirror the Bitcoin price trend, has been hit hard. On July 21, it crashed by over 7% in 24 hours. The fact that one of its co-founders Anthony Di Lorio has completely abandoned the crypto platform, citing its riskiness, has exacerbated the fall. Di Lorio is not alone. Early in May, this year, Elon Musk, after having championed Bitcoin (he had even put Bitcoin symbol on his twitter bio), took a U-turn and criticised Bitcoin for its excessive energy use (Bitcoin lost nearly 10% of its value the same day!).
The recent turmoil in crypto started with China clamping down hard on its domestic Bitcoin mining operation. China accounts for nearly 65% global Bitcoin mining. The official reason for the crackdown is to ‘prevent individual risks from becoming system wide risks’. Some analysts see this step as a pre-emptive move to eliminate any threat, real or perceived, to the China’s CBDC (Central Bank Digital Currency or Digi-Yuan) project. Bitcoin mining operation is now on the move and in search of cheap and/or green energy. Potential destinations range from Kazakhstan’s coal fired power plants to Texas’ renewable energy grid. The shutdown of mining at such a large scale has another significant consequence for the Bitcoin network – reduced hashrate. Roughly, hashrate is the cumulative computing power of the Bitcoin network. Mind you, the Bitcoin protocol prevents hacking by using this cumulative computing power as a defence bulwark. As mining operation starts shutting down the network becomes less and less secure. This could have an impact on Bitcoin pricing.
While mining bans were bad enough for crypto, one country after other started restricting crypto trading. UK’s Financial Conduct Authority (FCA) restricted Binance, the largest crypto exchange, from offering its services. FCA had earlier expressed its concern about crypto exchanges not meeting AML (Anti Money Laundering) requirements under the British law. It is reported that, New Jersey’s Bureau of Securities is planning on issuing a cease and desist order to BlockFi, a leading crypto service firm, to prevent it from issuing interest bearing offerings. Back home in India, ED (Enforcement Directorate) has served a notice under FEMA (Foreign Exchange Management Act) to the largest crypto exchange Wazirx. With so many global forces at play, Bitcoin sure seems to be traversing an uncharted territory.
(Santosh K Misra is the Transport Commissioner, Tamil Nadu. The opinions expressed here are his own)
Disclaimer: Cryptocurrency is an unregulated digital asset and is subject to market risks