China outlaws all crypto transactions and bans mining

PBoC, cyber watchdog and central economic planner act in a joint crackdown on crypto

People’s Bank of China headquarters, Beijing

All crypto-related operations are “illicit financial activities” and could result in criminal charges, 10 of China’s top financial watchdogs and state agencies declared in a joint notice on September 24.

Exchanging cryptocurrency with fiat money, trading crypto and derivatives, issuing tokens, and providing market-making or technical assistance for crypto transactions are all illegal, the agencies said.

Providing crypto services to Chinese citizens via overseas crypto exchanges is also illegal. Entities who facilitate such offshore activities by providing payments, clearing, marketing and other services will face legal consequences, said the notice. 

“Bitcoin, ether, tether and other virtual currency… are not legal tender. They must not circulate as currency in the market,” said the notice.

The sweeping ban, directly addressed to provincial governments by state agencies, marks the most expansive policy on crypto since China begun a crackdown on the virtual assets in 2013.  

Crypto speculation has “disrupted the order in the financial industry and economy, promoted gambling, illegal fundraising, fraud, pyramid schemes, and money laundering, and seriously endangered the safety of Chinese citizen’s assets”, said the notice.

The notice was signed off by the People’s Bank of China, Cyberspace Administration of China and Supreme People’s Court, among other top agencies, including bank, insurance and securities regulators as well as the law enforcement bureau.

By releasing the joint notice, the regulators will “normalise the regulatory mechanism and keep a high-pressure stance on virtual currency speculation”, said the PBoC in a statement published on September 24.

The PBoC and cyber watchdog CAC will develop tools to trace any online activities from the crypto assets, including mining, transactions and exchange.

The State Administration for Market Regulation, China’s market regulator, which also signed off the notice, will bar entities from using names including ‘cryptocurrency’, ‘crypto assets’, ‘virtual currency’, and ‘virtual assets’.

In a separate joint notice led by the National Development and Reform Commission, the top economic planner of China, officials vowed to clamp down on crypto mining, the process of using computer power to bring new coins into circulation.

“Mining cryptocurrency consumes large amount of energy, results in high carbon footprint and has very small contribution to the national economy,” said the notice, published on September 23.

The central decision-makers prohibited local governments from providing any financial subsidies or tax breaks to miners and required local policy-makers to hike electricity prices for mining.

In addition, miners are banned from buying their own electric generators. Small-scale hydropower plants must not directly supply electricity to miners, said the notice.

China used to be a hub for bitcoin mining due to its cheap power, with its share of total global bitcoin mining power accounting for more than 75% in September 2019, according to data collected by the University of Cambridge. The share declined sharply to 42% by April this year, the research team said.

The intensified crackdown sent bitcoin, the largest cryptocurrency, down as much as 9% on September 24. Bitcoin has regained ground quickly, bouncing back by 7% since then. It was trading close to $44,000 on September 27.

Exodus from China

China has taken measures to curb crypto activity for years, but until now, regulatory actions did not prevent bitcoin businesses from thriving in the territories.

But recently China has stepped up the pressure. In May, the country banned financial institutions and payment operators from providing services to crypto-related transactions.

The move, coupled with tech entrepreneur Elon Musk’s accusation that bitcoin overuses energy, triggered a massive sell-off. Bitcoin slumped to around $30,000 from the all-time high of around $65,000 seen in April.

In the wake of the latest ban, Huobi Global, China’s largest crypto exchange, which is listed in Hong Kong, told Central Banking that it will exit from offering services to customers in China by the end of this year.

The exchange operators had halted new customer registrations in China starting from September 24, said a spokesperson.

Existing customers will be able to transfer their assets to other exchanges or wallets over the next few months. Huobi will complete the “organised retirement of mainland China user accounts” by the end of this year, said the spokesman.

One of the largest crypto exchanges, Binance, which has faced a regulatory crackdown worldwide, told Central Banking that it was already banned in China four years ago. Binance does not currently conduct exchange operations in China, a spokesperson said.

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