(Reuters) – China’s most powerful regulators have stepped up the country’s crackdown on cryptocurrencies with a blanket ban on all crypto transactions and cryptocurrency mining.
The move lowered bitcoin and other major coins, while also putting pressure on crypto and blockchain-related stocks.
WHAT’S NEW?
Ten Chinese agencies, including the central bank and banking, securities and foreign exchange regulators, have pledged to work together to eliminate “illegal” cryptocurrency activity.
While China has implemented increasingly stringent rules on virtual currencies, it has now made all related activities illegal and sent a signal of intent that it plans to toughen even more for enforce the rules.
The People’s Central Bank of China (PBOC) has said it is illegal to facilitate cryptocurrency trading and plans to severely punish anyone who does, including those who work for foreign platforms in China.
The National Development and Reform Council (NDRC) has said it will launch a nationwide crackdown on cryptocurrency mining as it attempts to wipe out the sector altogether.
WHAT HAPPENS BEFORE?
China does not recognize cryptocurrencies as legal tender, and the banking system does not accept cryptocurrencies or provide relevant services.
In 2013, the government defined bitcoin as a virtual commodity and declared that individuals were allowed to freely participate in its online commerce.
However, later in the year financial regulators, including the PBOC, banned banks and payment companies from providing bitcoin-related services.
In September 2017, China banned initial coin offerings (ICOs) in an attempt to protect investors and limit financial risk.
The ICO rules also prohibited cryptocurrency trading platforms from converting legal tender into cryptocurrency and vice versa.
The restrictions have prompted most of these trading venues to close, with many people moving overseas.
The ICO’s rules also prohibited financial and payment companies from providing services for ICOs and cryptocurrencies, including account opening, registration, trading, clearing and clearing services. liquidation.
As of July 2018, 88 virtual currency trading platforms and 85 ICO platforms had withdrawn from the market, the PBOC said.
WHY WILL THE RULES BE CONTINUED?
The huge increase in the price of bitcoin and other coins over the past year has revived cryptocurrency trading in China, with investors finding ways to bypass existing regulations. It happens as the country tries to develop its own official digital currency, becoming the first major economy to do so.
Earlier this year, Chinese regulators tightened restrictions that prohibited financial institutions and payment companies from providing cryptocurrency-related services. An industry directive said speculative bitcoin trading had rebounded and was undermining “the security of people’s property and disrupting normal economic and financial order.”
Many Chinese investors were now trading on platforms belonging to Chinese stock exchanges that had relocated abroad, including Huobi and OKEx. Meanwhile, China’s over-the-counter cryptocurrency market has become busy again, while once-inactive social media trading rooms have come back to life.
The China-focused exchanges, which also include Binance and MXC, allow Chinese individuals to open accounts online, a process that only takes a few minutes. They also facilitate peer-to-peer transactions in over-the-counter markets which help convert Chinese yuan into cryptocurrencies.
These transactions are made through banks or online payment channels such as Alipay or WeChat Pay, although these have since promised to do due diligence on customers and put systems in place for payment. surveillance targeting websites and key accounts to detect illegal crypto-related transactions.
Retail investors also buy “computing power” from cryptocurrency miners, who design various investment programs that promise quick and significant returns.
WHAT IS THE IMPACT OF THE REPRESSION?
While cryptocurrencies fell on Friday, the drop was less pronounced than the drop seen in May when China’s State Council, or cabinet, pledged to crack down on bitcoin mining.
The test will be whether China is able to find and punish platforms and people who break the rules.
Some analysts said based on what happened before, determined investors would likely still find a way to trade.
“While retail traders in China may no longer be able to access online exchange platforms that are now illegal, crypto funds may be able to move the management of their funds overseas,†said Ganesh Viswanath Natraj, Assistant Professor of Finance at Warwick Business School.
Reporting by Tom Wilson, Samuel Shen and Alun John; Written by Rachel Armstrong; Editing by Nick Macfie
