The week ended on a sad note for the crypto market as China declared a blanket ban on cryptocurrency, deeming it illegal. Moments later, major digital currencies like Bitcoin and Ethereum started tumbling.
On Friday, Chinese regulators said that all types of cryptocurrency activities would be banned in the country. This includes crypto transactions and mining. The decision has put more pressure on the already nervous blockchain and crypto stocks. China has been a harsh regulator regarding cryptocurrencies, but this blanket ban is the pinnacle of all other crackdowns done in the past.
The Most Comprehensive Crackdown
- All major financial regulators of the country like the central bank and the top ten agencies from the banking, securities, and foreign exchange sectors have come together to stop illegal cryptocurrency. This is the first time all major Chinese agencies have joined hands for crypto regulations.
- Earlier in May, Beijing banned all financial institutions and payment companies from doing any cryptocurrency transactions. This wasn’t a first, as they had put similar bans back in 2013 and 2017.
- The Chinese authorities feel that identifying and monitoring crypto transactions like bitcoin is quite tricky because of anonymity, and also, there are many loopholes in the process. However, banks and payment firms in China have always come forward to support bitcoin activities.
- In a detailed statement issued by the regulators, the authorities spoke about their commitment to limit the crypto market. This is the most direct and comprehensive list of directives given by the regulators so far. It’s almost like a regulatory framework.
Bitcoin Environmental Concerns?
China’s move is seen in the backdrop of similar crypto crackdowns talks by governments worldwide. Everyone is seeking regulation for the privately-held digital currency system, from the Feds in the US to the Asian countries. The regulators fear that without a proper framework, this system is unsustainable and at risk of financial crimes and security threats, ultimately hurting investors.
They also fear undermining global environmental goals as the process of mining bitcoins by high performing computers might affect the environment.
Threat To Digital Yuan
Beijing has repeatedly said that crypto speculation disrupts its economic order, which is the nation’s top priority. They see crypto as a threat. Also since China has its own digital currency – the digital yuan. Digital Yuan is at an advanced pilot stage at the moment.
PBOC or the People’s Bank of China says, “cryptocurrencies must not circulate and that overseas exchanges are barred from providing services to mainland investors. It also barred financial institutions, payment companies and internet firms from facilitating cryptocurrency trading nationally”.
“The government resolutely clamp down on virtual currency speculation, and related financial activities and misbehavior in order to safeguard people’s properties and maintain economic, financial and social order”, the PBOC statement further stated.
Why the Market Is Shocked?
Bitcoin is down by 9% to reach the $40k level, while Ethereum fell by 10%. Other cryptocurrencies had a similar fate.
The industry had some inclination when the Chinese cabinet vowed to stop bitcoin mining and trading in the country back in May. But nobody expected a complete blanket ban as announced today. That’s why the market is in shock. That news back in May caused a 30% downfall in Bitcoin. However, many thought back then that the crackdown was a short term one.
Thus Bitcoin blockchain stocks like Riot Blockchain, Marathon Digital, Bit Digital etc., started to fall as a result of the ban. They fluctuated between 6.3-7.5% during premarket trading. Other crypto exchange forums like SOS and Coinbase went down by 6.1% and 3.4%, respectively.
Ban To Effect Crypto Mining?
China’s National Development and Reform Commission has supported this ban saying that a thorough clean up is necessary. They alleged that the high powered computers used to generate bitcoin tokens contribute very little to its economic growth. Instead, they are a risk and come in the way of their carbon neutrality goal as they use fossil fuels. Thus they have decided to restrict all electricity and financial supply needed for crypto mining.
This is likely to hit the market as the world gets 50% of its crypto supply from mining done in China. As pointed out by Christopher Bendkisen, the digital asset manager of CoinShares, the world receives $6 billion worth of cryptocurrencies from China which will now move to countries like Kazakhstan and Russia.