Please ensure Javascript is enabled for purposes of website accessibility

Why Chinese Cryptocurrency Stocks Fell Hard Again Today

By Jon Quast - Jun 22, 2021 at 1:21PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Chinese companies are working hard to get out of China and reassure their shareholders.

What happened

Popular cryptocurrency Bitcoin (BTC -0.53%) continued its slide on Tuesday as a consequence of China's crypto crackdown. Around 10 a.m. EDT, the price of Bitcoin had fallen below $30,000, according to CoinDesk -- its lowest price per coin since January. Naturally, funds that directly hold bitcoins like Grayscale Bitcoin Trust (GBTC -0.80%) had also fallen this morning. Grayscale Bitcoin Trust was down as much as 13% earlier in the session.

Some investors practice a strategy involving charts and patterns called technical analysis. While technical analysis tends to be more short-term oriented rather than the long-term investing mentality my colleagues and I advocate for at The Motley Fool, it's worth noting that these traders believed support for Bitcoin would be tested around $30,000. Apparently it indeed found support there. Since dipping just below the $30,000 level, the price of Bitcoin and consequently Grayscale Bitcoin Trust has surged. As of 12:30 p.m. EDT, both have bounced back about 10% from today's lows.

Since much of the current uncertainty with Bitcoin involves China, it's not surprising to see the sell-off continue for Chinese cryptocurrency stocks. As of this writing, SOS Limited (SOS -3.01%) stock was down 4%, Canaan (CAN -5.13%) was down 4%, Ebang International Holdings (EBON -7.72%) was down 9%, and BIT Mining Limited (BTCM -41.77%) was down 9% as well.

Two men look intently at stock data on a computer screen.

Image source: Getty Images.

So what

As I wrote yesterday, reports out of China indicate that over 90% of Bitcoin mining operations in the country have been shut down in recent weeks. The government doesn't want its people mining cryptocurrencies and has provided power companies with lists of companies to cut power to. Considering a significant portion of the mining power for Bitcoin comes from China, this has sparked a sell-off as cryptocurrency investors grapple with the uncertainty.

However, it's important to note that China isn't alone in wanting more regulation over Bitcoin. Perhaps China's crackdown is an extreme case, but even officials in the U.S. want to control cryptocurrencies more. Specifically, President Joe Biden nominee Brian Nelson had a nomination hearing today for a position in the Department of the Treasury. In it, Nelson said he'd be pushing for new rules when it comes to cryptocurrency to prevent money laundering.

While it's true many countries are considering new cryptocurrency regulations, it's fair to say what's happening in China is the most pressing issue for Bitcoin right now. In response to the rapid changes, Chinese cryptocurrency companies have rushed to reassure shareholders. For example, on May 28, Ebang management put out a press release entitled "Crackdown on Bitcoin mining has no direct or immediate impact on the company."

In Ebang's case, it can still sell its hardware to mining companies outside of China, even though over 99% of its customers in 2020 were located inside of China. The same is true of Canaan. For example, the company recently announced that it had sold almost 12,000 mining machines to Mohawk Infrastructure Group, which operates in the U.S. and Australia. Therefore, it's plausible that Ebang could continue doing business with the same Chinese companies as they move operations out of China.

To be clear, this is what some Bitcoin miners in China are trying to do. Yesterday, SOS announced a joint venture with Niagara Development in Wisconsin as it shifts its Bitcoin mining ambitions out of China. In the press release, chairman Yandai Wang said, "we remain optimistic about our strategic expansion in North America." Similarly, BIT Mining announced yesterday that, although the power was shut off to its Bitcoin mining subsidiary in China on Saturday, it's actively shipping hardware to Kazakhstan as it executes its "overseas deployment strategy."

A pick ax sits next to a coin displaying a symbol for Bitcoin.

Image source: Getty Images.

Now what

For cryptocurrency companies based in China, there's no denying that what's going on right now presents a real risk and it will take a lot to get up and running in another country. If I was thinking about investing in any of these stocks, I'd wait on the sidelines until they've fully transitioned. If the long-term opportunity is truly compelling, there's no harm waiting during the short term as these problems get sorted out. 

However, if you believe Bitcoin will bounce back quickly, it may be worth taking a look at Grayscale Bitcoin Trust sooner than later. As of this writing, bitcoins are trading for $32,465. That puts the asset value of shares of Grayscale Bitcoin Trust at $30.56 each. For comparison, shares trade at $27.98 -- about an 8% discount. This disparity perhaps reflects investor sentiment that Bitcoin has further to fall. But if it bounces back, right now is a good entry point into Grayscale Bitcoin Trust.

Jon Quast owns shares of Bitcoin. The Motley Fool owns shares of and recommends Bitcoin. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Grayscale Bitcoin Trust (BTC) Stock Quote
Grayscale Bitcoin Trust (BTC)
$14.94 (-0.80%) $0.12
BIT Mining Limited Stock Quote
BIT Mining Limited
$0.46 (-41.77%) $0.33
Canaan Inc. Stock Quote
Canaan Inc.
$4.07 (-5.13%) $0.22
Ebang International Holdings Inc. Stock Quote
Ebang International Holdings Inc.
$0.56 (-7.72%) $0.05
Bitcoin Stock Quote
$23,989.95 (-0.53%) $-126.96
SOS Limited Stock Quote
SOS Limited
$8.06 (-3.01%) $0.25

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/16/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.