Bitcoin and altcoins plunge as regulators circle

As Icarus would say - it's what happens when you fly too close to the sun. Altcoins are melting down across the board. In echoes of the trauma that afflicted bitcoin before Christmas, a parabolic run-up in prices has proved unsustainable. Bitcoin, too, is in the throes of its steepest fall since September last year, down 11% at the time of writing.

All the top alts, including Neo, which has been bucking the bearish sentiment of late, are down heavily, registering falls of around 20% or more. Lower down the food chain the bloodletting is worse still as investors bail out of the market wholesale.

Ripple has lost a quarter of its value in the past 24 hours, according to coinmarketcap.com, at $1.36. Cardano and EOS have both lost 22% and recent high-flyers Binance Coin and Dentacoin were down 36% and 38%, respectively.

Bitcoin was briefly this morning a relative oasis of calm by comparison, partly because it is on the other side of the trading pairs of the alts sell-off, which has the effect, at least temporarily, of shifting money into bitcoin, but it is also now down heavily, at one stage off 13%.

A welcome correction?

Because we mentioned a Greek myth at the top, let's continue. Bitcoin has been having its very own labour of Sisyphus, as its price repeatedly climbed higher over the past couple of weeks, only to see the bolder roll back down the hill again.

With bitcoin repeatedly testing $13,000 over the past few weeks, market participants will now worry that the leading cryptocurrency could decisively take out key support levels.

However, the trend of lower lows and lower highs is indisputable as bitcoin shifts lower and, so far today, the cryptocurrency has traded as low as $11,873. At the current rate and direction of travel, it could endanger the all-important $10,000 price point over the next few hours or days.

In an interview with the New York Times at the weekend, one early-stage investor named Grant Hummer, described the rollercoaster ride of last year and the leap from $5,000 to nearly $20,000, like this: "My neurons are fried from all the volatility. I don't even care at this point. I'm numb to it. I'll lose a million dollars in a day and I'm like, OK."

Another person, a hedge fund manager called Jeremy Gardner, told the NY Times: "Nothing feels real, it doesn't feel real."

"I'm ready for crypto assets to go down 90%. I'll feel better then, I think. This has been too insane," he continued.

With those sentiments in mind, this correction may be welcomed in some quarters as a way of removing some of the froth of "irrational exuberance" from the market. Even by bitcoin standards, price moves have been extreme in recent months, and this sell-off could squeeze out the wilder volatility.

Regulators clampdown

Regarding the timing of this sell off, altcoins have struggled to recover since coinmarketcap.com removed South Korean exchanges from its price average eight days ago.

But even before then, one factor has been looming large - regulatory push back. First it was South Korea, and now the focus has again returned to China.

South Korean governmental angst has been well-aired, although the presidential office has now rowed back on press reports last week that regulators were about to ban cryptocurrencies. Nevertheless, South Korean Finance Minister Kim Dong-yeon said today it was still "a live option" on the table, which will further unsettle traders and investors in the country.

Yesterday, a report on Bloomberg suggested that the long march of the Chinese crackdown that began early last year, culminating in the banning of exchanges in October, has further to run.

Now the Chinese authorities want to close what they describe as "centralised" exchanges and "trading apps", or probably more likely the trading taking place that utilises secure encrypted messaging apps.

When the authorities shuttered exchanges and banned initial coin offerings (ICOs), they purposefully left out over-the-counter and other forms of peer-to-peer trading from the clampdown. However, the government seems to have decided to move against professional traders and larger investors who have been using those channels.

Additionally, Reuters says it has seen an internal Chinese government memo in which a central bank official refers to discussions at the highest levels, preparing for the closing down of all cryptocurrency trading because it does not align with the needs of the "real economy".

China hates deviance, and miners

According to the Reuters report, People's Bank of China vice governor Pan Gongsheng, wrote: "The financial work conference clearly called for limiting 'innovations' that deviate from the need of the real economy and escape regulation."

The memo also calls for the banning of settlement services and wallets.

In addition to that, last week's rumour of a move against China's miners proved to be well-founded. The central government has instructed local authorities to limit the electricity consumption of the mining operations in the country, which account for approximately 80% of total "hashing power" worldwide.

Returning to South Korea, news site Yonhap reported that investors will be fined if they fail to abide by new rules, which stipulate that client accounts on exchanges must use real names and can no longer be anonymous as in the past. The fine could result in investors losing as much as 60% of their holdings, judging by past enforcement history - similar rules were introduced from 1993 to ban anonymous transactions in the financial system.

If all that was not enough to send markets into a tizz, Joachim Wuermeling, a board member of Germany's Bundesbank, showing acute awareness of the problem of whack-a-mole faced by global regulators trying to curb the nascent asset class, has called for governments to coordinate on a global scale to regulate cryptocurrencies.

"Effective regulation of virtual currencies would therefore only be achievable through the greatest possible international cooperation, because the regulatory power of nation states is obviously limited," commented Wuermeling.

In other news, $444,000 worth of Stellar Lumens coins were stolen from a digital wallet called BlackWallet.

A large portion of the funds were thought to have been transferred to a wallet at popular altcoin exchange Bittrex, although at the time of writing the funds have yet to be recovered.

The hacker had succeeded in hijacking the domain naming system (DNS) used by BlackWallet, in an unwelcome reminder of the security risks surrounding custody of cryptocurrency and the problem with storing assets with wallets that connect to the internet.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.