China has banned financial institutions and payment companies from providing services related to cryptocurrency transactions, and warned investors against speculative crypto trading. The decision further compounds the dwindling of the $2 trillion cryptocurrency market.
The value of the cryptocurrency market has slid by more than 23% in just the last five days, triggered by a sell-off in bitcoin most recently catalyzed by comments made by Tesla CEO Elon Musk.
The ban means that financial institutions, including banks and online payments channels, must not offer clients any service involving cryptocurrency, such as registration, trading, clearing and settlement, three industry bodies said in a joint statement on Tuesday.
“Recently, crypto currency prices have skyrocketed and plummeted, and speculative trading of cryptocurrency has rebounded, seriously infringing on the safety of people’s property and disrupting the normal economic and financial order,” they said in the statement.
The three industry bodies are: the National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China.
The institutions must not provide saving, trust or pledging services of cryptocurrency, nor issue financial products related to cryptocurrency, the statement added.
The statement also highlighted the risks of cryptocurrency trading, saying virtual currencies “are not supported by real value”, their prices are easily manipulated, and trading contracts are not protected by Chinese law.
China has banned crypto exchanges and initial coin offerings but has not barred individuals from holding cryptocurrencies. This latest move adds to other steps that the Chinese authorities have taken to curtail the influence of cryptocurrency in China’s financial industry.
China has been working to develop the digital yuan (e-yuan) as a government-backed alternative to cryptocurrencies. The government has completed the third phase of e-yuan trial and moved to internationalize it in partnership with Hong Kong, Thailand and the United Arab Emirates (UAE), along with the Bank of International Settlements.
The decision to ban financial institutions from dealing with cryptocurrencies thus signals that the Chinese government may totally ban cryptocurrency soon, and shift to e-yuan.
Meanwhile, bitcoin has continued at the receiving end of the decisions and utterances of governments and business leaders. The leading coin has plunged to as low as $42,000 since it reached the $64,000 milestone last month. While big bitcoin investors seem unbothered by the decline, negative speculations have continued to swirls around the once darling coin over its mining impact on the environment.
China has been a huge base of bitcoin mining, prompting the authorities to take more interest in mining activities.
In March, China’s Inner Mongolia region said it would shut down cryptocurrency mining operations in the region due to concerns over energy consumption in an attempt to save the city from blackouts. Last month, a coal mine in the Xinjiang region flooded and shut down. This took nearly a quarter of bitcoin’s hash rate — or computing power.
With the cryptocurrency pressure piling up on its financial and energy industries, the Chinese authorities are warily playing safe.
But as bitcoin and ether take the hit, attention has shifted to altcoins, with bitcoin’s former cheerleader, Musk shifting loyalty to Dogecoin. Bitcoin was trading over $43,000 as of Tuesday, but there is still concern about its volatility. Musk, whose announcement to divorce bitcoin contributed to its plunge, said he would only return to the coin when there is sustainable mining energy.