In a major blow to the cryptocurrency market, China has banned all cryptocurrency transactions besides vowing to root out mining of digital assets, sending shockwave across the digital world.
The move led to Bitcoin and various coins dropping in price on Friday. The ban was announced by ten Chinese government agencies which included the central bank as well as securities and foreign exchange regulators. They said they would work closely to maintain a ‘high-pressure’ clampdown on cryptocurrency trading.
The People’s Bank of China (PBoC) said in point blank terms that cryptocurrencies must not circulate in markets as traditional currencies; it also banned financial institutions, payment companies and internet firms from facilitating cryptocurrency trading and stated that overseas exchanges are prohibited from providing services to mainland investors via the internet.
The bank cited safeguarding people’s properties and maintaining economic, financial and social order as the reason behind the ban. Interestingly, Bitcoin and Tether were specifically mentioned by the bank in its statement and so cannot be circulated from now on in China besides other currencies.
Why China Banned Cryptocurrency Trading
The Cryptocurrency ban was not abrupt as the Chinese government was on it for quite a long time now. The Chinese cabinet had vowed in May to crack down on Bitcoin mining and trading. Apparently, this was part of Chinese government efforts to avoid financial risk.
Apart from finances, massive energy consumption seems to be at the heart of the ban as well, apparently. What gives credence to this is the statement by China’s economic planning agency that the crackdown was important to meet carbon goals.
The climate change concern seems to be at play considering that just days ago, China announced that It would not build new coal plants overseas. This seems a phenomenal development considering that China is the biggest domestic producer of coal. Not only that, Beijing is the largest financier of coal-fired power plants around the world but the climate change concerns seem to be affecting the regime now.
The move, however, seems at odds with Chinese plans of ‘dominating the world’ as experts say because pulling out seems to be leaving space for others. However, on the other end, China has been hunting down digital payments system operating domestically as well.
For instance, Beijing is taking measures against AliPay, a digital payment system widely popular in China with over a billion consumers at global scale.
The Chinese clampdown is not new in a sense that back in 2013, it ordered third-party payment providers to stop using bitcoin. Beijing also stopped token sales in 2017 and vowed to target crypto exchanges in 2019. Nonetheless, the latest move seems to be more intense than the earlier moves.
How China’s Cryptocurrency ban Affected Bitcoin
Soon after the announcement, Bitcoin dropped over six per cent to $42,2167. Talking about Ether, it tumbled 10 percent.
It is to be kept in mind that China was amongst the leading players in crypto mining. As far as virtual currency mining is concerned, China accounted for more than half of the world’s crypto supply.
But is this going to help China? Expert opinion is divided. On one side of the aisle, experts say that China is giving away space to the US as well as other European countries to reap the benefits of Crypto by pulling out of this digital system.
They argue that China might be trying to launch its own brand of digital renminbi though prospects of it gaining traction in international financial world seem pretty low.