Authorities in China took a fresh swipe at crypto mining by calling the practice “extremely harmful.” Citing crypto mining as a threat to the country’s efforts to reduce carbon emissions, authorities have voiced concerns at the amount of electricity it takes to mine cryptocurrencies.
Cryptos like Bitcoin rely on what is known as mining, a practice that involves solving highly complex computational problems before adding transactions to the blockchain. Miners are awarded free coins for their effort, but the practice requires specialized computers and lots of electricity. China accounts for more than 75% of all the crypto mining in the world.
The price of Bitcoin fell after the remarks, dropping more than 7% to $60,889, its lowest value in more than a week. Ether, the second largest digital token after Bitcoin, slid more than 8% on Tuesday to $4,297, the worst level in a fortnight.
These events point to two of the biggest challenges related to cryptocurrencies like Bitcoin. The first is the fact that cryptos are highly volatile and will respond sharply to positive and negative news. A 7% drop would be highly significant for any other asset class, but not necessarily for crypto. The second challenge is that while crypto finds its footing, it will be prone to swipes at its legitimacy from authorities and regulators. As a crypto trader, you need to adapt your crypto trading strategy to account for its vulnerability to market sentiment.