Cryptocurrencies were broadly down on Tuesday morning with dogecoin (DOGE) plunging 26% as China’s regulatory crackdown continues to take a toll.
The joke token was trading at $0.19 (£0.14), its lowest since April when it climbed to $0.7. It had earlier surged on support from Tesla (TSLA) CEO Elon Musk and after cryptocurrency exchange platform Coinbase announced it will begin accepting inbound transfers of the crypto.
Bitcoin (BTC-USD) fell 0.3% to trade at $32,779. Ethereum (ETH-USD) – the second biggest crypto by market cap – was down 2.7% and was trading at $1,947.
Despite this, “investor confidence in cryptocurrencies is growing,” said Naeem Aslam, chief market analyst at Ava Trade.
“This is backed up by institutional investors, who are working to diversify their product portfolios in order to provide their clients with access to bitcoin,” he said, adding that surveys show a growing number of hedge fund managers are willing to devote nearly 10% of their portfolio to cryptocurrencies.
He said that the People’s Bank of China has encouraged Alipay and other large institutions to crack down on cryptocurrency trading, which is one reason for the sell-off.
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And reportedly, numerous bitcoin mines in Sichuan were shut down after China put a stop to crypto mining. About 60% of all the world’s currently circulating bitcoins are estimated to be mined in China
“China is rolling its own cryptocurrency and has every incentive to have as little competition as possible…I think we will see miners leaving China and relocate where there is spare or cheap energy,” Ruud Feltkamp, CEO at crypto trading bot Cryptohopper, told Reuters.
Meanwhile, Charles Hayter, CEO of crypto data firm CryptoCompare, told CNBC: “When China sneezes, bitcoin catches a cold. But this flexing of regulatory muscle is often just that — in the past eight years, this story has risen its head at least three times.”
Industry experts said the crackdown would likely have a short-term effect on mining capacity and prices but would likely just drive miners to relocate, rather than exit the industry. Some believe this could encourage more mining capacity to move to the West.
The crypto slump began late last week after the US Federal Reserve brought forward the timeline for future interest rate hikes, raising the prospect that cheap money may disappear sooner than expected.