Bitcoin stumbles as China turns the screws on cryptocurrency

Published September 24, 2021
A Chinese flag is seen among representations of Bitcoin and other cryptocurrencies in this illustration picture taken on June 2. — Reuters
A Chinese flag is seen among representations of Bitcoin and other cryptocurrencies in this illustration picture taken on June 2. — Reuters

China intensified a crackdown on cryptocurrency trading on Friday, vowing to root out "illegal" activity and banning crypto mining nationwide, hitting Bitcoin and other major coins and pressuring crypto and blockchain-related stocks.

Ten Chinese government agencies, including the central bank as well as banking, securities and foreign exchange regulators, said in a joint statement they would work closely to maintain a "high-pressure" clampdown on trading of cryptocurrencies.

The People's Bank of China (PBOC) said cryptocurrencies must not circulate in markets as traditional currencies and that overseas exchanges are barred from providing services to mainland investors via the internet.

The PBOC also barred financial institutions, payment companies and internet firms from facilitating cryptocurrency trading.

The moves come after China's State Council, or cabinet, vowed in May to crack down on Bitcoin mining and trading as part of efforts to fend off financial risk, sparking a major sell-off of cryptocurrencies.

The Chinese government will "resolutely clamp down on virtual currency speculation, and related financial activities and misbehaviour in order to safeguard people's properties and maintain economic, financial and social order", the PBOC said in a statement on its website.

In response to the latest move, Bitcoin , the world's largest cryptocurrency, dropped over six per cent to $42,2167, having earlier been down about 1pc.

Smaller coins, which typically rise and fall in tandem with Bitcoin, also tumbled. Ether fell 10pc while XRP fell a similar amount.

"There's a degree of panic in the air," said Joseph Edwards, head of research at cryptocurrency broker Enigma Securities in London. "Crypto continues to exist in a grey area of legality across the board in China."

The move also hit cryptocurrency and blockchain-related shares.

US-listed miners Riot Blockchain, Marathon Digital and Bit Digital slipped between 6.3pc and 7.5pc in premarket trading. China-focused SOS dropped 6.1pc while San Francisco crypto exchange Coinbase Global fell 3.4pc.

'Thorough cleanup'

The National Development and Reform Commission (NDRC) said it was launching a thorough, nationwide cleanup of cryptocurrency mining. Such activities contribute little to China's economic growth, spawn risks, consume a huge amount of energy and hamper carbon neutrality goals, it said.

It's an "imperative" to wipe out cryptocurrency mining, a task key to promoting high-quality growth of China's economy, the NDRC said in a notice to local governments.

Virtual currency mining had been a big business in China before a crackdown that started earlier this year, accounting for more than half of the world's crypto supply.

The NDRC said it will work closely with other government agencies to make sure financial support and electricity supply will be cut off for mining. The national planning body also urged local governments to come up with a specific timetable and road map to eradicate such activities.

Previous restrictions, issued by local governments, paralysed the industry as miners dumped machines in despair or sought refuge in places such as Texas or Kazakhstan.

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