Bitcoin Tumbles as China Widens Ban on Crypto Transactions
China banned all crypto transactions and vowed to root out mining of digital assets, delivering the toughest blow yet to the industry.
Crypto-related transactions will be considered illicit financial activity, including services provided by offshore exchanges, according to a notice (link in Chinese) published Friday by 10 government agencies including the central bank, the top court, market and cyberspace regulators.
The notice — the most detailed yet from authorities — clarified that Chinese nationals working at offshore virtual currency exchanges and organizations providing promotional, payment and technical support to them will be “investigated according to the law.” Prior to the publication of the rules, it is unclear where the exact legal boundaries of overseas virtual currency exchanges lie. Many of these virtual currency exchanges have offices in China, and most of their customers are Chinese residents.
Although rules have already been in place to stamp out crypto trading for its ties to fraud, money laundering and excessive energy usage, it is the first time the country’s public prosecution and law enforcement agencies — the Supreme People's Court, Supreme People’s Procuratorate and Ministry of Public Security — have participated in drawing up the related regulations.
The notice urged the 10 agencies to join forces and establish a coordination mechanism to effectively handle crypto-trading risks. At the same time, it stressed cooperation and effective implementation among their local regulatory counterparts.
Cyberspace and telecom regulators will be tasked with shutting down websites, applications and mini programs related to the virtual currency business, and tech companies are prohibited from providing services such as operating domains and marketing promotions for these activities.
Certain phrases including “virtual currency,” “virtual assets,” “cryptocurrency” and “crypto assets” are banned from names registered by companies or individual business owners, with the market regulator closely monitoring such registration procedures and advertising activities from market entities.
The People’s Bank of China and the Cyberspace Administration of China will strengthen monitoring techniques to detect cryptocurrency mining, trading and exchange activities.
Cryptocurrencies including Bitcoin and Tether are not government currency and cannot be circulated, the central bank said.
Bitcoin slumped in the wake of the announcement, falling 8% to about $41,000 as of 9 a.m. in New York.
Chinese officials are going further to stamp out crypto trading for its ties to fraud, money laundering and excessive energy usage. China already has rules that bar banks from offering crypto-related services. To get around such rules, traders have moved to over-the-counter platforms and offshore exchanges.
“China’s ban on all cryptocurrency trading activity will have some short-term impact on the currency’s valuation, but long-term implications are likely to be muted,” said Ganesh Viswanath Natraj, an assistant professor of finance at Warwick Business School.
While there are probably still Chinese onshore speculators, activity has already shifted out of the country over the years, said Clara Medalie, the research lead at data provider Kaiko.
Crypto mining’s massive energy consumption is also part of the reason the industry is coming under scrutiny. In a separate statement, China’s economic planning agency said it’s an urgent task to root out crypto mining, and the crackdown is important to meet carbon goals for fighting climate change.
China faces a severe power crisis that’s already roiled commodities from aluminum to steel, and several industries have had their power supplies curbed in the past few weeks.
The country is home to a large concentration of the world’s crypto miners and as recently as April had a 46% share of the global hash rate, a measure of computing power used in mining and processing, according to the Cambridge Bitcoin Electricity Consumption Index.
“The Chinese regulators have always been extreme in their views, and these comments are not new,” said Vijay Ayyar, head of Asia Pacific with cryptocurrency exchange Luno in Singapore.
“The interesting part is also why they continue making these statements,” he said. “It’s probably because they sense continued unabated activity in China and hence having to go on an overdrive.”
China’s renewed crackdown against crypto mining and trading started in May. That was the first time top officials singled out crypto mining at the national level since dropping it in 2019 from a proposed list of dirty industries to be eliminated.
The move caused a collapse in crypto prices, with Bitcoin losing about half its value between April and July this year. While the market has since recovered some ground, it’s still far below the record high of $63,000.
Bloomberg contributed to this report.
Contact editor Bob Simison (firstname.lastname@example.org)
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