China declares all crypto transactions illegal, causing Bitcoin’s value to fall
- The notice prohibits all related financial activities involving cryptocurrencies
- Bitcoin dropped as much as 8.9 percent to $41,019 in European afternoon trading
- China said crypto had given rise to money laundering, fraud and pyramid schemes
China’s central bank has said that all financial transactions with cryptocurrencies are illegal, which is the death knell for digital trade in China after crackdown on the volatile currency.
The global values of cryptocurrencies, including Bitcoin, have fluctuated wildly in the past year, in part due to Chinese regulations, which sought to prevent speculation and money laundering.
“Virtual currency-related business activities are illegal financial activities,” the People’s Bank of China (PBOC) said in an online statement Friday, adding that violators are “under investigation for criminal liability in accordance with the law.”
China’s central bank has said that all financial transactions with cryptocurrencies are illegal. Pictured: A worker modifies crypto mining rigs in Sichuan province
The notice prohibits all related financial activities involving cryptocurrencies, such as trading cryptocurrencies, selling tokens, dealing with virtual currency derivatives and “illegal fundraising”.
Bitcoin, which had already fallen before the announcement, fell a whopping 8.9 percent to $41,019 in European afternoon trading before recovering a little later in the day.
The central bank said that in recent years trading in Bitcoin and other virtual currencies had “become widespread, disrupting the economic and financial order, giving rise to money laundering, illegal fundraising, fraud, pyramid schemes and other illegal and criminal activities.”
This was “a serious threat to the safety of people’s belongings,” the PBOC said.
While creating and trading crypto has been illegal in China since 2019, further crackdowns this year by Beijing warned banks to halt related transactions and shut down much of the country’s vast network of bitcoin miners.
Friday’s statement by the central bank sent the strongest signal yet that China is closed to crypto.
Bitcoin, the world’s largest digital currency, and other cryptos cannot be tracked by a country’s central bank, making them difficult to regulate.
The global values of cryptocurrencies, including Bitcoin, have fluctuated wildly in the past year, partly due to Chinese regulations
Analysts say China fears the spread of illicit cryptocurrency investment and fundraising in the world’s second-largest economy, which also has strict rules around capital outflows.
The crypto gig also opens the gates for China to introduce its own digital currency, which is already in the pipeline, allowing the central government to track transactions.
In June, Chinese officials said more than 1,000 people had been arrested for using crime profits to buy cryptocurrencies.
Several major Chinese provinces have banned the operation of cryptocurrency mining since early this year, with one region responsible for eight percent of the computing power needed to run the global blockchain — a series of online ledgers to record bitcoin transactions.
Bitcoin values plummeted in May after Beijing warned investors against speculative trading in cryptocurrencies.
“China’s ban on all cryptocurrency trading will have a short-term impact on currency valuation, but the long-term impact is likely to be dampened,” said Ganesh Viswanath Natraj, assistant professor of finance at Warwick Business School.
“This ban will result in the migration of crypto investment opportunities to other hubs in Asia, such as the launch of Singapore’s DBS digital currency exchange earlier this month,” he added.