China has dealt its hardest blow to the crypto industry by declaring that all crypto-related transactions will be considered illicit, including services provided to overseas exchanges.
China banned all crypto transactions and vowed to root out digital asset mining, dealing the hardest hit yet to the industry.
Cryptocurrency-related transactions will be considered illicit financial activity, including services provided by offshore exchanges, the People’s Bank of China said on its website. He added that cryptocurrencies, including Bitcoin and Tether, are not fiat currency and cannot circulate.
Bitcoin plummeted in the wake of the announcement, dropping 8% to around $ 41,000 as of 9am in New York.
Chinese officials are going the extra mile to stamp out the crypto trade for its links to fraud, money laundering and excessive energy use. China already has rules that prohibit banks from offering cryptocurrency-related services. To circumvent such rules, traders have moved to overseas overseas platforms and stock exchanges.
“China’s ban on all cryptocurrency trading activity will have some short-term impact on the currency’s valuation, but the long-term implications are likely to fade,” said Ganesh Viswanath Natraj, assistant professor of finance at Warwick Business School. .
While Chinese speculators are likely still on the ground, activity has already shifted out of the country over the years, said Clara Medalie, research leader at data provider Kaiko.
The massive energy consumption of crypto mining is also part of the reason the industry is under scrutiny. In a separate statement, China’s economic planning agency said it is an urgent task to root out crypto mining and that crackdown is important to meet carbon targets.
China is facing a serious energy crisis that has already affected commodities, from aluminum to steel, and various industries have seen their energy supplies shrink in recent weeks.
The country is home to a large concentration of the world’s crypto miners and, as of April, had a 46% share of the global hash rate, a measure of the computing power used in mining and processing, according to the Electricity Consumption Index. of Cambridge Bitcoin.
“Chinese regulators have always been extreme in their views and these comments are not new,” said Vijay Ayyar, head of Asia Pacific with cryptocurrency exchange Luno in Singapore.
“What’s interesting is also why they continue to make these statements. This is probably because they perceive non-stop activity in China and therefore have to go into overdrive, ”he added.
China’s renewed crackdown on cryptocurrency mining and trading activity began in May. That was the first time that top officials pointed to cryptocurrency mining nationwide since they removed it in 2019 from a proposed list of dirty industries to be removed.
The move caused a collapse in cryptocurrency prices, with Bitcoin losing roughly half its value between April and July this year. While the market has since regained some ground, it is still well below the all-time high of $ 63,000.