By Wayt
A group of government entities in China declared all financial transactions involving cryptocurrencies illegal on Friday and issued a nationwide ban on cryptocurrency mining, intensifying an ongoing crackdown and sending crypto prices plummeting.
“Virtual currency-related business activities are illegal financial activities,” the People’s Bank of China said in a notice posted on its website, adding that such activity “seriously endangers the safety of people’s assets.”
The bank specified that services offering trading, order matching, token issuance and derivatives for virtual currencies are prohibited. Foreign crypto exchanges that provide services in mainland China are also illegal, the PBOC said.
“Overseas virtual currency exchanges that use the internet to offer services to domestic residents is also considered illegal financial activity,” the bank said.
Workers at overseas crypto exchanges that are in violation will be investigated, it added.
Separately, Chinese authorities also vowed to punish illegal crypto mining activities in order to prevent the “hidden risks caused by the blind and disorderly development” of the industry and to help the country achieve its carbon reduction goals, according to a joint statement posted online Friday by 11 government entities.
In a joint statement by 11 Chinese government entities, authorities vowed to work closely to punish “illegal” crypto mining activities to help prevent the “hidden risks caused by the blind and disorderly development” of the industry and to help the country achieve its carbon reduction goals.
The notice was posted online Friday by China’s National Development and Reform Commission, but is dated Sept. 3.The announcements hit the cryptocurrency market hard, shaving almost $200 billion off the total market cap of the sector within hours of the statements, according to data from CoinMarketCap.com
The price of Bitcoin fell more than 5 percent after the announcements, trading hands at $41,500 per coin.
Ethereum fell almost 8 percent after the news to just over $2,830 per coin while Ripple, or XRP, fell more than 6 percent to $0.91 per coin.
All three cryptocurrencies recovered slightly later in the day but remained sharply below pre-announcement levels.
US-listed shares of companies that have high exposure to cryptos were also hit with shares of crypto exchange Coinbase falling more than 1.4 percent by Friday afternoon and no-fee trading app Robinhood’s stock trading down about 2 percent.
Shares of MicroStrategy, which has been vocal about adding Bitcoin to its balance sheet, were down 3.6 percent.
It’s the latest move in a months-long crackdown on the crypto sector in China.
The country has repeatedly called for more regulations on the sector and for local governments to step up enforcement.
China’s government has framed its ongoing crackdown on crypto as an effort to reduce the country’s carbon emissions and the latest statements come as China grapples with a shortage of power that’s led to some outages.
It was already clear to investors that China was unfriendly toward cryptos, but the latest round of statements still had a jarring effect, Dan Ives, managing director at Wedbush Securities, said.
“China was signaling going in this direction, but when the news hits, the knee-jerk reaction is clearly going to be a risk-off trade on bitcoin,” he said. “When a country such as China comes out and says cryptocurrencies will be illegal around transactions, that’s a headline that’s hard to shake.”
Republican Sen. Pat Toomey of Pennsylvania said China’s crypto crackdown is a boon for the US.
“China’s authoritarian crackdown on crypto, including #Bitcoin, is a big opportunity for the U.S.,” Toomey wrote on Twitter. “It’s also a reminder of our huge structural advantage over China.”
“Economic liberty leads to faster growth, and ultimately, a higher standard of living for all,” added Toomey, who has pushed back against calls for increased regulation of apps like Robinhood that critics say dangerously “gamify” stock and crypto trading.
The Friday announcement comes just as signs of trouble reach fever pitch at Evergrande Group – China’s second-largest real estate developer – which is staggering under its debt obligations, sparking fears of bigger problems throughout the Chinese property and credit markets.
The latest announcement also comes as the PBOC is also working on its own central bank-issued digital currency.
Ives said China’s crypto crackdown and hands-off approach to the Evergrande crisis show that Xi Jinping’s government won’t let market jitters get in their way of a recent effort to overhaul some industries and corners of the financial markets.
