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The value of Bitcoin fell sharply yesterday to just above $30,000 at one point, losing more than half since it reached an all-time high of nearly $65,000 in mid-April. What Is Happening to Bitcoin? According to economists at Deutsche Bank, this sharp drop mostly occurred for two reasons. Last week, Elon Musk tweeted that Tesla would not accept Bitcoin as a means of payment, and on Tuesday, the People’s Bank of China (PBoC) reiterated that digital tokens cannot be used as a form of payment. What’s more, as cryptocurrencies begin to seriously compete with regular currencies and fiat currencies, regulators and policymakers will crack down.

More governments will contain cryptocurrencies

“When Elon Musk announced that Tesla would stop taking Bitcoin as payment due to concerns about the extraordinary amounts of energy needed to process transactions, he wasn’t saying anything new. Energy use increases proportionally with the cryptocurrency’s market valuation. As such, numerous alarms have been warning us about the environmental impact caused by cryptocurrency energy consumption. Some have said this impact could be ameliorated by using capital in the cryptocurrency market to develop green technological advancements. This is called a ‘positive externality’; that is, technological innovation in the financial sector would drive innovation in the energy sector.”

“The PBoC stated on Tuesday that a virtual currency ‘is not a real currency’ and ‘should not and cannot be used as currency in the market.’ But again, there is nothing new here. It is clear that China’s targeted regulatory actions are designed to support the launch its digital currency (CBDC). The PBoC has not yet revealed a specific timeline for its official Digital Currency/Electronic Payment (DC/EP) rollout, but the government aims to have its CBDC ready for widespread use in time for the Beijing Winter Olympic Games in February 2022.”

“Following a comprehensive market consultation in early 2020, the EU proposed a single regulation for all crypto-assets including cryptocurrencies that were not already governed by existing regulations (e.g. MiFIDII). The new regulation, which is called the Markets in Crypto-Assets Regulation (MiCAR), is expected to take effect by the end of this year or early next.”

“The US government has taken numerous regulatory actions since early 2019, such as the Framework for Digital Assets. The new Biden administration is expected to establish a collaborative and unified strategy to adjust the existing comprehensive regulatory framework and establish new regulations as needed to provide legal certainty.”

 

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