China has banned all kinds of cryptocurrency transactions, and pledged to put an end to the mining of digital assets. The information was shared on the website of the People’s Bank of China. It also stated that all digital currencies such as Bitcoin or Tether would not be deemed as fiat currency, and thus, cannot be circulated. The announcement resulted in the price of Bitcoin falling by more than $2,000.
The Sept. 24 statement warned that anyone involved in “illegal financial activities” would be considered as committing a crime and be liable to face prosecution. Foreign websites that provide cryptocurrency services to Chinese citizens will also be seen as engaging in illegal activity.
Beijing has apparently taken action against cryptocurrency trading due to its excessive energy consumption as well as involvement in fraud and money laundering. The crypto industry consumes huge amounts of power. The economic planning agency had earlier emphasized the need for crypto mining to be brought under strict regulations in order to meet China’s carbon emission goals. China is also facing a power crisis that has affected multiple industries.
Traditional banks in the country are already banned from offering any kind of cryptocurrency-based services. Traders wanting to deal in cryptocurrencies circumvent these rules by using over-the-counter platforms and offshore exchanges.
Cryptocurrency setback likely to be temporary
“China’s ban on all cryptocurrency trading activity will have some short-term impact on the currency’s valuation, but long-term implications are likely to be muted,” Ganesh Viswanath Natraj, assistant professor of finance at the Warwick Business School told Bloomberg.
Several agencies, including regulators of finance, securities, and foreign exchange apart from China’s Central Bank have pledged to work in tandem to quell the illegal cryptocurrency activity. Reportedly, this is the first time that all these regulatory agencies have come together to ban cryptocurrency-related transactions.
“In the history of crypto market regulation in China, this is the most direct, most comprehensive regulatory framework involving the largest number of ministries,” NYU Law School adjunct professor, Winston Ma, told Reuters.
According to the Cambridge Bitcoin Electricity Consumption Index, China has been home to a major share of the global crypto miner population. As of April, China accounted for 46 percent of the global “hash rate,” which is the measure of computing power used in mining and processing. Such high activity was due to China’s low power costs and access to cheap computer hardware.
Experts also note that China’s ban on cryptocurrencies was triggered because of the threat they posed to the country’s digital yuan that is presently in a pilot stage. Republican Senator Pat Toomey criticized China’s “authoritarian crackdown on crypto.”