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Bitcoin erases 2021 gains as crypto sell-off gathers pace

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FILE - In this May 12, 2021, file photo, an advertisement of Bitcoin, one of the cryptocurrencies, is displayed on a tram in Hong Kong. China’s biggest banks promised Monday, June 21, 2021, to refuse to help customers trade Bitcoin and other cryptocurrencies after the central bank said executives were told to step up enforcement of a government ban. (AP Photo/Kin Cheung, File)
Bitcoin has 'violated an important support level' said one analyst. Photo: AP

Bitcoin's price plunged on Tuesday afternoon to below $30,000 as China continued its regulatory crackdown. 

The world's biggest cryptocurrency was down roughly 12%, trading at $29,047 (£20,909). It had started the year at around $29,374, which means it has essentially erased any gains made in 2021.

The People's Bank of China is encouraging Alipay and other large institutions to crack down on their trading, and the country extended the clampdown on the bitcoin mining industry to its biggest bitcoin producing provinces, including the southwest province of Sichuan.

This comes after, Chinese vice-premier Liu Hu promised last month that China would "severely crack down on illegal securities activities and severely punish illegal financial activities."

News on Monday afternoon that software company MicroStrategy (MSTR) had spent another $489m on bitcoin did not give the crypto a much-needed boost.

Bitcoin's price plunged on Tuesday afternoon. Chart: Yahoo Finance Uk
Bitcoin's price plunged on Tuesday afternoon. Chart: Yahoo Finance UK

"Bitcoin has violated an important support level and it is likely that we may see more panic in the market as investors will think that it may be the end of bitcoin," said Naeem Aslam, chief market analyst at AvaTrade.

"But investors should remember that bitcoin is a kind of asset which has fought many similar pessimistic views many times," he said.

In his view, the current sell off could be the opportunity for many to load their portfolio with bitcoin at a cheap price.

Read more: Cryptocurrency crimes hit 8,000 a year as scammers flock to the market

"It is true that more sell off can take place and no one knows really where the exact bottom will be. But for now, one thing is for certain, that it is not the time to sell bitcoin."

CEO of fintech Yield App, Tim Frost, said: "It may be that we are reaching an inflection point with regulators and crypto. It seems many have finally realised how powerful and popular this asset class is, yet rather than try to understand and regulate it effectively with forward-thinking policies, they are reacting in fear with bans."

"This, added to the general downward sentiment, seems to be indicating a full-on bear market from here. Sensible investors would do well to find a solid passive income opportunity for their crypto while they sit back and ride out the storm."

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.

"Given the market forces and demand for scarcity assets to protect wealth, ITI believes this is an attractive buying opportunity for investors," said Stephen Kelso, head of markets at ITI Capital.

He said China has clamped down on bitcoin previously in 2013 and 2017 but it has not "checked the advance" of the crypto.

Watch: What is bitcoin?