China escalates its crackdown on cryptocurrencies with a blanket ban on all digital currency transactions and mining, sending bitcoin and other major coins lower and pressuring crypto and blockchain-related stocks.
Last day, ten Chinses agencies, including the central bank, financial, securities and foreign exchange regulators have pledged to work together to root out “illegal” cryptocurrency activity.
It is the first time the Beijing-based regulators have joined forces to ban all cryptocurrency-related activity. Earlier this year, China banned financial institutions and payment companies from providing services related to cryptocurrency transactions and issued similar bans in 2013 and 2017.
“In the history of crypto market regulation in China, this is the most direct, most comprehensive regulatory framework involving the largest number of ministries,” said Mr. Winston Ma, NYU Law School adjunct professor.
The move comes amid a global cryptocurrency crackdown as governments become anxious that privately operated highly volatile digital currencies could erode their control over the financial systems, increase systemic risk, promote financial crime and hurt investors.
Governments across the world are also worried about the “mining” of cryptocurrencies, the energy-intensive computing process through which bitcoin and other tokens are created is hurting global environmental goals.
Chinese government agencies have repeatedly raised concerns that cryptocurrency speculation could disrupt the country’s economic and financial order. Analysts say China also sees cryptocurrencies as a threat to its sovereign digital yuan.
“Beijing is so hostile to economic freedom they cannot even tolerate their people participating in what is arguably the most exciting innovation in finance in decades,” top US Republican Senator Mr. Pat Toomey tweeted. While US regulators are closely scrutinizing digital asset risks, they said that they also offer opportunities, including to promote financial inclusion.
China’s central People’s Bank of China (PBOC) said it was illegal to facilitate cryptocurrency trading and that it planned to severely punish anyone doing so, including those working for overseas platforms from within China.
The National Development and Reform Council (NDRC) said it would launch a nationwide crackdown on cryptocurrency mining as it tries to phase the sector out entirely.
Bitcoin, the world’s largest cryptocurrency, dropped more than 9 percent before paring those losses. It was down 6.6 percent at $41,937. Smaller coins, which typically mimic bitcoin, also tumbled.
In May, China’s cabinet vowed to crackdown on Bitcoin mining and trading as it sought to mitigate financial risks, without going into details, sending the digital asset tumbling 30 percent in a day.
Analysts said that, despite the initial shock, they did not expect the crackdown to dent global crypto-asset prices long term as companies continue to adopt crypto products and services.
Crypto exchanges OKEx and Huobi, which originated in China but are now based overseas, are likely to be the worst affected since they still have some China users, analysts said. Tokens associated with the two exchanges plunged over 20 percent.
“China’s actions haven’t held back crypto’s rise too much in the past so I wouldn’t be surprised to see it bounce back once more,” wrote Mr. Craig Erlam, an analyst at currency broker OANDA.
Virtual currency mining had been big business in China before May, accounting for more than half the world’s crypto supply, but miners have been moving overseas.