After the computing power was halved, the ban on virtual currency speculation was proposed again, and the uncertainty of the BTC market intensified

After Xinjiang, Inner Mongolia, Qinghai, and Yunnan successively issued regulatory policies for virtual currency mining, Sichuan, a major Bitcoin mining province, caused the computing power of China's mining pools to drop by 30%. Since the evening of June 19, the overall crypto market has continued to decline. However, the halving of computing power is just the beginning. On June 21, the People's Bank of China interviewed some banks and payment institutions on the issue of virtual currency trading speculation. Many banks and payment institutions pointed out that accounts are prohibited from being used for Bitcoin transactions. The overall crypto market fell again. The top ten currencies once fell by more than 20%. BTC briefly fell below $32,000, and market uncertainty intensified.

BTC falls below $32,000

The recent sharp drop in the crypto market is related to a series of mining liquidation policies, market profit-taking withdrawal, and the bursting of some hype bubbles.

First of all, as the country continues to promote the clearance of encryption mining projects, Bitcoin computing power has fallen to its lowest level since early November last year, down 46% from its peak in mid-May this year, nearly halving.

According to Bitinfocharts, Bitcoin's hashrate once reached 91.2 EH/s (the latest data shows 104.693 EH/s), close to half of the high of 171.4 EH/s less than six weeks ago, and mining profitability has also dropped from a peak of $0.449/day/TH/s to the current $0.226/day/TH/s. Bitcoin's hashrate has fallen to an 8-month low, and the last time it was below 90 EH/s was on November 3, 2020.

Data from BTC browsers on June 20 showed that Bitcoin's mining difficulty will be reduced by 11.12%. On June 6 and May 30, the network recorded two difficulty reductions (-5.30% and -15.97% respectively), and the mining difficulty dropped from 25.046T to 19.932T in one month. The last time Bitcoin saw three consecutive mining difficulty reductions was in December 2018, when the cryptocurrency market was in a "death spiral" caused by miners. At that time, miners shut down their machines and BTC prices fell rapidly, falling to a low of $3,125 on December 15, 2018, a correction of 84% compared to the high in December 2017.

In addition, the re-promotion of the ban on virtual currency speculation has caused the short-term market to decline. According to news on June 21, the relevant departments of the People's Bank of China recently interviewed some banks and payment institutions such as Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank, Postal Savings Bank of China, Industrial Bank and Alipay (China) Network Technology Co., Ltd. regarding the issue of banks and payment institutions providing services for virtual currency trading speculation.

The relevant departments of the People's Bank of China pointed out that virtual currency trading speculation disrupts the normal order of the economy and finance, breeds risks of illegal cross-border transfer of assets, money laundering and other illegal and criminal activities, and seriously infringes on the property safety of the people. All banks and payment institutions must strictly implement the "Notice on Preventing Bitcoin Risks" and "Notice on Preventing Token Issuance and Financing Risks" and other regulatory provisions, earnestly fulfill their obligations to identify customers, and must not provide account opening, registration, trading, clearing, settlement and other products or services for related activities.

The participating institutions stated that they will attach great importance to this work and, in accordance with the relevant requirements of the People's Bank of China, will not carry out or participate in virtual currency-related business activities, will further increase the intensity of investigation and disposal, and take strict measures to resolutely cut off the funding payment links for virtual currency trading speculation activities.

After the news came out, Bitcoin fell below $32,000 in the short term, reaching a low of $31,700.00.

Multiple indicators fell and market uncertainty increased

As the market fell, CoinShares' weekly report showed that digital asset funds once again saw a large amount of capital outflows, with most of the selling concentrated in Bitcoin funds. Bitcoin funds have seen capital outflows for the sixth consecutive week. Specifically, the total outflow of digital asset investment products last week was $79 million, which was the third consecutive week of decline and the longest consecutive outflow record since February 2018. The total outflow of Bitcoin funds was $89 million, while the total outflow of Ethereum products was $1.9 million.

In addition, as of June 21, Eastern Time, Grayscale's total asset management scale fell below $30 billion to $29.4 billion. The trading price of the Bitcoin Trust Fund (GBTC) was $27.70 per share, down 7.05% from the previous day; the trading price of the Ethereum Trust Fund (ETHE) was $18.78 per share, down 9.10% from the previous day.

Meanwhile, Glassnode data shows that Ethereum miner revenue has just hit a 3-month low of $1,157,026.48. The previous 3-month low was $1,171,824.27 observed on June 20.

It is worth mentioning that data shows that $2.5 billion worth of Bitcoin options will expire this Friday, also dominated by short positions.

CryptoQuant CEO Ki Young Ju tweeted that the BTC market is currently very uncertain. Whale selling indicates a bear market/false bull market, while retail selling indicates a bull market. We are now in a neutral state, stop trading, and wait patiently for the next fluctuation.

Interestingly, with the sharp drop in the crypto market, there are many bears. Nassim Taleb, a former Bitcoin admirer and author of the book "Black Swan", published a draft paper on Sunday, explaining his recent 180-degree turn in his comments on the asset. Taleb said that despite the hype, Bitcoin failed to meet the concept of "money without a government" (it turns out that it is not even a currency at all). Taleb said that Bitcoin "can neither be used as a long-term or short-term store of value (its expected value is no higher than 0), nor as a reliable inflation hedge, and worst of all, it does not constitute, or even far from constituting, a tail protection tool for catastrophic events. This is a far cry from his views in 2017, when Taleb wrote the preface to the book "The Bitcoin Standard", which proved that Bitcoin is a new form of sound money. Taleb wrote at the time that Bitcoin was "a brilliant idea."

In addition, veteran analyst and cryptocurrency trader Peter Brandt also said that he now prefers to hold cash over Bitcoin and cryptocurrencies. He has cut crypto assets from his portfolio, which previously accounted for 25% of his portfolio. Brandt added that as long as the dollar is bullish, other assets, including cryptocurrencies, may be hit.

Ki Young Ju, CEO of on-chain analysis firm CryptoQuant, said a new Bitcoin bear market has been confirmed. He pointed out that large holders have begun to send tokens to exchanges in large quantities, which is a sign of "whale capitulation."

Is purchasing power still there?

Although the market price has almost halved from its highest point in previous months, there is still no shortage of buyers in the market.

On June 21, MicroStrategy CEO Michael Saylor announced on Twitter that MicroStrategy purchased another 13,005 bitcoins at a price of $37,617 per bitcoin for $489 million in cash. As of June 21, 2021, MicroStrategy owns 105,085 bitcoins with a total value of $2.741 billion and an average price of $26,080 per bitcoin.

According to OKLink data, as of 10:00 on June 22, 2021, the number of BTC held by PurposeBitcoinETF reached 20,729.30, with an increase of 508.24; the number of ETH held by PurposeEtherETF reached 58,604.86, with an increase of 1,514.10.

In addition, Coindesk pointed out that Grayscale's parent company Digital Currency Group (DCG) will purchase $50 million of Grayscale ETC Trust. However, DCG has not responded to this yet.

Miners are also going overseas to survive. CNBC reporters pointed out that Chinese logistics companies are airlifting Bitcoin mining machines to Maryland, USA. On June 21, BitMining also announced that the first batch of 320 mining machines arrived in Kazakhstan, with a total computing power of about 18.2PH/S, and is expected to be deployed and put into operation on June 27. According to the plan, the second and third batches, totaling 2,600 mining machines, are expected to arrive in Kazakhstan before July 1, with a total computing power of about 102.3PH/S.

Su Zhu, CEO of Three Arrows Capital, said in a recent podcast: "Although the pullback is brutal, it does not necessarily mean that the entire market is over, so I think the bull market is definitely not over yet. This method allows institutional investors to enter the market and participate. Goldman Sachs previously announced plans to offer Ethereum futures and options to clients. Many of their clients believe that this pullback is a good opportunity to enter the market." He continued that despite a series of bearish news recently, this is not the only reason for the pullback. The market did take profits at this point, but there is still a lot of buying demand.

However, for now, Bitcoin is still struggling around $30,000. Whether it can break through this resistance level in the short term or explore a lower support level requires continued observation.