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China’s top regulators ban crypto trading and mining, sending bitcoin tumbling

China's top regulators ban crypto trading and mining, sending bitcoin tumbling
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  • China intensifies crackdown on cryptocurrency
  • Pledges to root out “illegal” commercial activity, ban mining
  • Bitcoin, smaller coins are falling

SHANGHAI/LONDON (Reuters) – China’s most powerful regulator on Friday intensified a crackdown on cryptocurrencies by imposing a blanket ban on all crypto and mining transactions, hitting bitcoin and other major currencies and putting pressure on crypto and blockchain-related stocks.

Ten agencies, including the central bank and financial, securities and foreign exchange regulators, have pledged to work together to root out “illegal” crypto activity, marking the first time that regulators in Beijing have united to explicitly ban all crypto-related activities.

A closer look: What’s new in China’s crackdown on cryptocurrency?

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China in May banned financial institutions and payment companies from providing services related to cryptocurrency transactions, and issued similar bans in 2013 and 2017.

Repeated bans highlight the challenge of filling loopholes and identifying bitcoin-related transactions, although banks and payment companies say they support the effort.

Friday’s statement is the most detailed and extensive to date from the country’s major regulators, underlining Beijing’s commitment to throttle the Chinese crypto market.

“In the history of regulating the cryptocurrency market in China, this is the most direct and most comprehensive regulatory framework that includes the largest number of ministries,” said Winston Ma, associate professor at New York University School of Law.

The move comes amid a global crackdown on cryptocurrencies, as governments from Asia to the United States fear that particularly volatile digital currencies will undermine their control over the financial and monetary systems, increase systemic risk, foster financial crime and harm investors.

They also worry that “mining,” the energy-intensive computing process through which bitcoins and other tokens are generated, is detrimental to global environmental goals.

Chinese government agencies have repeatedly raised concerns that cryptocurrency speculation could disrupt the country’s economic and financial system, one of Beijing’s top priorities.

Analysts say that China also sees cryptocurrencies as a threat to the sovereign digital yuan, which is in an advanced beta stage.

“Beijing is so hostile to economic freedom that it cannot even afford to engage its citizens in what is arguably the most exciting financing innovation in decades,” Republican US Senator Pat Toomey wrote on Twitter.

While US regulators are closely examining the risks of digital assets, they said they also present opportunities, including promoting financial inclusion.

‘Social system’

The People’s Bank of China (PBOC) has said that cryptocurrencies should not be traded and that offshore exchanges are prohibited from providing services to investors residing in China. It also prevented financial institutions, payment companies, and internet companies from facilitating the trading of digital currencies at the national level.

A small game image and representations of the virtual currency Bitcoin standing on a motherboard in this illustration taken on May 20, 2021. REUTERS/Dado Ruvic/Illustration

The People’s Bank of China said the government would “resolutely hang speculation in virtual currencies… to protect people’s property and maintain economic, financial and social order.”

China’s National Development and Reform Commission said it would cut financial support and electricity supply for mining, which it said generates risks and impedes carbon neutrality goals.

Bitcoin, the world’s largest cryptocurrency, fell more than 9% before paring those losses. It was down 6.6% at $41,937 around 12:00 EST. Smaller coins, which usually mimic bitcoin, also fell.

China’s cabinet in May vowed to crack down on bitcoin mining and trading as it sought to mitigate financial risks, without elaborating, sending bitcoin down 30% in one day. Friday’s news dashed hopes among crypto enthusiasts that the government will fail to follow through on its threat.

“This is a manifestation of the crypto-mining campaign announcement… back in May,” said Ma from New York University.

A step back?

The move also affected cryptocurrency and blockchain-related stocks, although it recovered some of those declines in US morning trade.

US-listed miners Riot Blockchain (RIOT.O), Marathon Digital (MARA.O) and Bit Digital (BTBT.O) slid between 2.5% and 5%, while Coinbase Global (COIN.O) slumped in San Francisco. 1%.

Despite the initial shock, analysts said they do not expect the crackdown to affect global crypto asset prices in the long run as companies continue to embrace crypto products and services.

However, the revelations about major cryptocurrency exchanges and payment companies were not immediately apparent. A spokesperson for the world’s largest company, Binance, said it has been blocked in China since 2017. A Coinbase spokesperson declined to comment. A spokesperson for global payment company PayPal (PYPL.O) said it does not offer crypto services in China.

Analysts said crypto exchanges OKEx and Huobi, which originated in China but are now based abroad, are likely to be hit the hardest as they still have some Chinese users. Tokens associated with the two exchanges are down more than 20%. The exchanges did not immediately respond to requests for comment.

However, the Chinese government has struggled in the past to prevent internet users from evading its controls.

“China’s actions haven’t prevented the rise of cryptocurrencies much in the past, so I wouldn’t be surprised to see them come back again,” wrote Craig Erlam, analyst at currency broker OANDA.

Virtual currency mining was big business in China before May, accounting for more than half of the world’s cryptocurrency supply, but the miners are moving abroad.

“It is clear that the losers in all of this are the Chinese,” said Christopher Bendiksen, head of research at digital asset manager CoinShares. “They will now lose about $6 billion in annual mining revenue, all of which will flow into the remaining global mining regions,” he added, citing Kazakhstan, Russia and the United States.

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Reporting by Shanghai newsroom; Alon John from Hong Kong and Tom Wilson from London; Additional coverage by Krystal Hu in New York; Writing by Michael Price in Washington; Editing by Nick McPhee, Carmel Crimmens, Emilia Sithole-Mataris and Giles Elgood

Our Standards: Thomson Reuters Trust Principles.

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