China fires another shot at bitcoin, making cryptocurrency transactions illegal

China has continued its bitcoin crackdown by making all cryptocurrency transactions illegal.

The Chinese central bank issued a statement on Saturday, seeking to clarify a joint notice from regulators in May which told financial institutions to step away from all cryptocurrency activity, signalling an end to the country’s involvement in the speculative digital assets.

“In recent years, bitcoin and other virtual currency transaction hype activities have prevailed, disrupting economic and financial order, breeding money laundering, illegal fund-raising, fraud, pyramid schemes and other illegal and criminal activities, seriously endangering the safety of people’s property,” the People’s Bank of China said on the weekend.

Direct and derivative cryptocurrency transactions, the use of crypto tokens to raise capital, and all crypto trading are now classed as “illegal financial activities and are strictly prohibited”.

Cryptocurrency mining – using computers to find cryptographic hashes on blockchain networks – has been banned, and it is now illegal for international cryptocurrency exchanges to service Chinese residents.

Bitcoin’s price took a dive off the back of the Chinese crackdown, dropping from nearly $62,000 per coin to $56,600 in less than eight hours early on Saturday morning, according to CoinGecko, before returning to hover around the $60,000 mark.

Jonathon Miller, Australian managing director of cryptocurrency exchange Kraken, expected the pricing effects of China’s crypto crackdown to be minimal.

“China has cracked down on the cryptocurrency industry countless times over the past decade,” he said.

“While it can sometimes be difficult to comprehensively divine market forces, it’s increasingly likely the market had already priced in a China crypto crackdown and is now inured to it.”

The Chinese central bank said it was one of 10 government departments, including the Central Cyberspace Administration of China and the Ministry of Public Security, implementing the prohibition.

Industry was quick to respond to China’s ban, a sign it was taking the local laws seriously.

Huobi, an exchange that was originally founded in China but which expanded overseas in 2017 during the ruling party’s last major cryptocurrency crackdown, said on Sunday it was ceasing new registration for Chinese accounts and will “gradually retire” accounts from mainland China.

Chinese retail giant Alibaba said on Monday that it would no longer allow merchants to sell cryptocurrency mining equipment, citing the regulatory squeeze.

Hardware, software, and tutorials “for obtaining virtual currencies” will be banned from the platform starting next Friday and specific blockchain miner categories will be removed from its online marketplace.

Most serious ban so far

PwC’s Crypto Leader, Henri Arslanian, called China’s latest prohibition “the most serious and coordinated ban so far”.

“This time there is no ambiguity,” he said in a Twitter thread.

“Crypto transactions and crypto services of all kind are banned in China. No room for discussion. No grey areas.

“It will be interesting to see if this has an impact on crypto ownership. Whilst courts in China have previously recognised crypto as ‘property’, it will be interesting to watch if that changes.”

China’s hardline approach to crypto has been running parallel with its development of a national digital currency, the eCNY, which is has slowly been introduced to people through a lottery system.

The establishment of a eCNY along with the cryptocurrency ban sets up the state with even greater control and surveillance of its citizens, economist George Selgin told the New York Times.

“This is really about establishing a state monopoly in payments,” Selgin said.

“The most obvious implication is that the state will have more opportunities to monitor citizens’ economic activity.”

China’s hostile attitude toward cryptocurrency is diametrically opposed to the likes of El Salvador which earlier this month began accepting bitcoin as legal tender.

In Australia, the government is looking closely at cryptocurrency regulation with the intention of protecting consumers without stifling blockchain innovation.