China intensified its cryptocurrency crackdown on Friday (Sept. 24) and vowed to root out “illegal” trading activity and mining of digital assets. “Virtual currency-related business activities are illegal financial activities,” the People’s Bank of China said in a statement, adding it “seriously endangers the safety of people’s assets”.
Beijing has taken steps to curb the rise of cryptocurrency since at least 2013. However, there has been a significant crackdown this year with the government banning financial institutions and payment companies from providing crypto-related services.
And now for the first time 10 powerful Chinese government agencies including the central bank promised to work together to shut down cryptocurrency trading in all its forms as they see it as
a volatile, speculative investment, a risk to the financial sector, a way to launder money and a drain on the environment.
Analysts also say China sees cryptocurrencies as a threat to its sovereign digital-yuan, which is at an advanced pilot stage.
The price of bitcoin, the world’s largest cryptocurrency, dropped as much as 6% after China announced the decision Friday morning but recovered over the weekend. It was trading above $43,000 as of 8:10am on Monday in Hong Kong. Meanwhile, shares in crypto-related firms tumbled on Monday.
“Whilst this is not a surprise as China has ‘banned’ crypto many times in the past, this time there is no ambiguity,” PricewaterhouseCoopers crypto leader Henri Arslanian said in a post on Twitter. “Crypto transactions and crypto services of all kind are banned in China. No room for discussion. No grey areas.”
“In the history of crypto market regulation in China, this is the most direct, most comprehensive regulatory framework involving the largest number of ministries,” Winston Ma, NYU Law School adjunct professor told Reuters.
“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,” Ganesh Viswanath Natraj, an assistant professor of finance at Warwick Business School told Bloomberg.
Dr Sean Stein Smith, an assistant professor at Lehman College and an adviser at The Central Bank Digital Currency Think Tank (CBDCTT) in New York City, argues that China’s latest restrictions on Bitcoin mining and trading is seen as an opportunity for free market economies.
“Cracking down and attempting to squeeze these entirely new models into existing frameworks seem appealing, and may even work in the short-term, but will ultimately fail to contain or curtail the dynamism that this sector continues to show. Capital, people, and the ideas they create flow to where they are treated the best. If more restrictive regimes choose to crack down on these items, free-market economies should move to the embrace them with open arms” he wrote on Euronews.
Amid the crackdown, many Chinese crypto exchanges shut down or moved out of China. Friday’s announcement also comes as regulators from Asia to the U.S. are closely scrutinizing digital asset risks. While many governments argue that privately operated highly volatile digital currencies could undermine their role in the existing financial system, increase systemic risk, promote financial crime and hurt investors, El Salvador has adopted bitcoin as currency.