Crypto crash: After China’s regulatory crackdown, Coinbase struggles under weight of sell-off

From Tokyo to Toronto, it’s shaping up to be another volatile day. U.S. futures are off their lows, and have even turned positive at times. Meanwhile, Asia is getting pummeled, and Europe, after a rough start, is following U.S. futures higher.

There are no such glimmers of hope in crypto land. Bitcoin is down a further 7% this morning after sharp sell-offs in recent days.

FILE PHOTO: Customers talk against a backboard with signs of cryptocurrency during 2020 Taipei International Finance Expo in Taipei, Taiwan, November 27, 2020. REUTERS/Ann Wang/File Photo

In today’s essay, I take a closer look at the winners and losers from last week’s surprise FOMC meeting. Spoiler: there aren’t many winners.

Ok… moving on… let’s check in on the rest of the markets action.

Markets update

Asia

  • It’s a brutal day in Asia with the Nikkei down nearly 3.3% in afternoon trade, off steeper losses.
  • The reverberations from last week’s bombshell FOMC meeting are hitting overseas markets hard this morning. “Concerns over rate normalization continues to keep a lid on risk sentiment,” analysts at Singapore’s OCBC Bank wrote in an investor note picked up by CNBC.
  • Nuclear talks with Iran broke down over the weekend with no deal in sight. That, and the election of hardline cleric Ebrahim Raisi, is pushing oil up this morning.

Europe

  • The European bourses were a blur of red out of the gates with the Stoxx Europe 600 down 0.65% in the opening minutes, before gaining. Banks, energy and basic resources are being hit particularly hard.
  • Thrifty Brits. A new YouGov study of 17 countries shows Britons squirreled away more than anyone else during the lockdown, but their sense of optimism about the reopening (and presumed willingness to go out and spend) puts them middle of the pack.
  • As of this morning, the whole of Italy minus tiny Valle d’Aosta (where Hannibal crossed the Alps on giant pachyderms back in the day) is considered zona bianca, which means more of the economy is open for business in time for the summer tourism season. Alas, an investor note this morning from Berenberg bank forecasts a somewhat disappointing tourism boost to the Mediterranean economies.

U.S.

  • U.S. futures are rebounding this morning. That’s after all three major exchanges finished the week in the red.
  • Shares in American Airlines were up 0.3% in pre-market after the carrier revealed its cutting about 950 flights from its summer schedule, a sign of softness in the travel market.
  • There’s not much on the calendar this week save public appearances by Fed officials who may give more insight into where they stand on future rate hikes. Also, the Fed releases bank stress test results on Thursday, which could give financials a nudge.

Elsewhere

  • Gold is up a touch, trading around $1,770/ounce.
  • The red-hot dollar is taking a breather this morning.
  • Crude is rebounding again, with Brent around $74/barrel.
  • Bitcoin had a rough weekend. It’s trading below $33,000 this morning.

***

Taking stock

We saw a huge reversal last week. The hot assets—energy, small-cap and financial stocks; commodities and crypto—all collapsed. Meanwhile, one of the biggest dogs of the past quarter—the buck—had an astounding turnaround, truly living up to its billing as the almighty dollar.

It’s shaping up to be a grim day for cryptocurrency investors, as tokens are shedding value left and right.

The market has been reeling since last Wednesday, when crypto-influencer Elon Musk tweeted that his electric carmaker, Tesla, was “concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal,” and would stop accepting bitcoin as payment for its vehicles. While bitcoin’s gargantuan carbon footprint has long been a leading concern among those bearish on its future, Musk’s comments threw the reality of its impact into stark relief—at least for crypto buyers and sellers.

But the market absorbed another gut punch Tuesday, as investors recoiled from news that China is moving to regulate the burgeoning industry. According to a joint statement issued by three of the country’s industry bodies, virtual currency, including bitcoin and ether, “is not a real currency” and “cannot be used as currency in the market,” effectively banning banks and payment companies from dealing in such assets. Notably, the government-controlled People’s Bank of China is currently developing its own e-currency, the digital yuan, which would be wholly overseen by the central bank.

The news has sown worry that other foreign governments might tighten restrictions around what’s thus far been a loosely regulated enterprise. In another dark sign for the industry, Inner Mongolia, one of China’s five autonomous regions, today launched a dedicated telephone line, email, and mail service for reporting illegal cryptocurrency mining operations. Under pressure from Beijing to meet its ambitious green energy goals, the region has cracked down in recent months on its vast web of crypto miners, which accounted for 7.71% of the global bitcoin network hash rate from September 2019 through March 2020.