China’s Central Bank tags cryptocurrency illegal

China’s central bank has stepped up its onslaught on cryptocurrencies on Friday, imposing a blanket ban on all crypto transactions and mining, putting pressure on bitcoin and other major coins as well as on crypto and blockchain-related companies. Ten Beijing-based agencies, including the central bank, financial, securities, and foreign exchange regulators, have pledged to work together to combat “illegal” cryptocurrency activity. This is the first time the Beijing-based agencies have come together to expressly prohibit all cryptocurrency-related activity.

China restricted financial institutions and payment businesses from offering services connected to cryptocurrency transactions in May, following similar prohibitions issued in 2013 and 2017. Though banks and payment companies say they support the endeavour, the repeated prohibitions illustrate the difficulty of closing loopholes and identifying bitcoin-related transactions. Beijing’s resolve to smother the Chinese crypto market is underscored by Friday’s statement, which is the most thorough and expansive yet from the country’s primary regulators.

The People’s Bank of China (PBOC) stated on its website that all cryptocurrencies, including bitcoin and tether, are not fiat currency and cannot be traded. According to the PBOC, all crypto-related transactions, including those supplied by offshore exchanges to domestic citizens, are illegal financial operations. This in turn caused  Bitcoin to fall by as much as 4.5%. Ether, like other crypto-related equities, has also plummeted.

Cryptocurrencies such as Bitcoin and Tether, according to the central bank, cannot be circulated in the market because they are not fiat currencies. The rise in cryptocurrency use has disturbed the “economic and financial order,” leading to an increase in “money laundering, illegal fund-raising, fraud, pyramid schemes, and other unlawful and criminal activities,” according to the report.The central bank warned that Offenders will be “investigated for criminal culpability following the law,” Chinese government agencies have often expressed concern that cryptocurrency speculation could jeopardize the country’s economic and financial order, which is a primary priority for Beijing. Meanwhile, China’s economic planning office stated that eradicating crypto mining is a top priority for the country and that the crackdown is necessary to accomplish carbon reduction targets.

“This is the most direct, most comprehensive regulatory framework in the history of crypto market regulation in China, encompassing the greatest number of ministries,” Winston Ma, adjunct professor at NYU Law School, said. Governments from Asia to the United States are concerned that privately run extremely volatile digital currencies will undermine their control over the financial and monetary systems, create systemic risk, encourage financial crime, and harm investors.

China, which is home to some of the world’s largest crypto mining operations, is also pursuing those companies. The National Development and Reform Commission announced that it would begin an “imperative” nationwide cleanup of cryptocurrency mining. “China has outlawed crypto more times than one can count,” Vijay Ayyar, head of Asia Pacific business at Singapore-based crypto exchange Luno, said in a tweet. According to analysts, China regards cryptocurrencies as a danger to its sovereign digital yuan, which is currently being tested.

“Beijing is so hostile to economic liberty that they can’t even allow their citizens to participate in what is possibly the most exciting invention in finance in decades,” – senior Republican Senator Pat Toomey tweeted. 
While US regulators are closely monitoring the risks associated with digital assets, they have also stated that they provide benefits such as promoting financial inclusion. The People’s Bank of China (PBOC) has stated that cryptocurrencies should not be traded and that foreign exchanges should not serve Chinese investors.

It also made it illegal for financial institutions, payment providers, and internet businesses to facilitate bitcoin trading across the country. The government would “severely restrict virtual currency speculation to protect people’s assets and maintain economic, financial, and social order,” according to the PBOC. The National Development and Reform Commission of China announced that it will strive to cut off financial support and electrical supplies to mining, which it claims create hazards and impedes carbon neutrality targets.

Since 2017, Binance, the world’s largest cryptocurrency exchange, has been blocked in China. According to observers, OKEx and Huobi, both of which originated in China but are now based in the United States, will be the hardest hit because they still have some Chinese users. The value of tokens linked to the two exchanges has plummeted by more than 20%. The exchanges did not respond to requests for comment right away.

However, the Chinese government has previously struggled to prevent internet users from circumventing its rules. “China’s moves haven’t held crypto’s climb back too much in the past, so I wouldn’t be shocked to see it bounce back again,” Craig Erlam, an analyst at currency trader OANDA, wrote. Before May, virtual currency mining was a significant business in China, accounting for more than half of the global supply, but miners have started relocating elsewhere.

“The Chinese are clearly the losers in all of this,” Christopher Bendiksen, head of research at digital asset firm CoinShares, said. “They will now lose roughly $6 billion in annual mining revenue,” he claimed, naming Kazakhstan, Russia, and the United States as examples.

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