On Friday, Beijing finally cracked the whip down on cryptocurrencies after its central bank, the People’s Bank of China (PBOC), said that services offering trading, order matching, token issuance, and derivatives for virtual currencies were strictly prohibited in the country. According to PBOC, it is also illegal for overseas cryptocurrency exchanges to provide services in mainland China.
The news was unveiled through a Question and Answer (Q&A) published on the PBOC website,
Although this is not the first time that China has been tough on cryptocurrencies, it had never before prohibited activities involving cryptocurrencies in the country. It had opted to instead restrict financial institutions like banks from offering cryptocurrency services before cracking the whip down on crypto miners.
According to the translated version of the Q&A, the central bank said, “Overseas virtual currency exchanges that use the internet to offer services to domestic residents are also considered illegal financial activity,” and “Workers at foreign crypto exchanges will be investigated.”
Besides prohibiting any crypto-related activity, the central bank also said that it had stepped up its monitoring to track any crypto-related transactions and eradicate any speculative investing.
“Financial institutions and nonbank payment institutions cannot offer services to activities and operations related to virtual currencies,” the PBOC said.
Earlier this year, Beijing’s crackdown on cryptocurrency mining forced miners to close down their businesses and some relocated to other friendlier states like the United States where they reopened them.
Before the crackdown on cryptocurrency mining, Chinese crypto miners contributed to about 70% of mining activity within the crypto space and especially for Bitcoin. And so, the crackdown caused a slump in the prices of most cryptocurrencies including that of Bitcoin and Ethereum because of reduced processing power since miners are responsible for processing transactions.
Before that, PBOC had ordered banks and non-bank financial institutions to stop providing crypto-related services.
In July, a Beijing-based company had to shut down for allegedly facilitating cryptocurrency transactions through its software.
While most of the actions towards limiting the use of cryptocurrencies are viewed as an attempt to fulfill its climate target since it was the biggest carbon emitter and much of the carbon emissions were attributed to the mining activities.
However, it is still not very clear how cracking down on private cryptocurrencies would help since the PBOC is working on its digital currency, the digital Yuan, and China is still the leading contender for central bank-issued digital currencies around the world.
Effect On The Financial Markets
Immediately after the news broke, the price of Bitcoin (BTC) sunk by over 6% in 24 hours to trade at $41,882 and although it had slightly gone up by the time of writing, it was still about 4% down in the last 24 hours trading at $41,970.28.
Ethereum also took a dip dropping by about 9% to trade at $2,867.Besides cryptocurrencies themselves, stocks that have heavy exposure to cryptocurrencies also slumped during the mid-morning trading on NASDAQ. Coinbase for example took a 2% drop, Microstrategy dropped by 5%, and Riot Blockchain by around 6%.