China tightened its grip on cryptocurrency, declaring all cryptocurrency-related financial transactions unlawful and imposing a national ban on cryptocurrency mining, the energy-intensive process in which massive computer networks compete for freshly generated crypto tokens. China imposed similar prohibitions in 2013 and 2017 prohibiting financial institutions and payment firms from offering services connected to cryptocurrency transactions.
In a statement issued, 11 Chinese government agencies including The People’s Bank of China (PBOC) pledged to cooperate closely together to punish “illegal” crypto mining activities in order to assist limit the spread of the cryptocurrency.
Meltem Demirors, chief strategy officer at CoinShares, tells CNBC that this is the 20th time China has outlawed bitcoin. “There’s always something ‘different’ about the bans, but this happens all the time and it’s never really dramatic in the larger scheme of things.”
According to George Selgin, an economist and senior fellow at the Cato Institute, the Chinese government’s decision to create a central bank digital currency and make crypto transactions illegal is part of a larger effort to divert citizens away from popular private financial services providers like AliPay and WeChat.
Winston Ma, NYU Law School adjunct professor said “In the history of crypto market regulation in China, this is the most direct, most comprehensive regulatory framework involving the largest number of ministries.”
Other operations related to cryptocurrencies, such as trading, token issuance, and derivatives for virtual currencies, would be severely forbidden, according to China’s central bank. Offshore crypto exchanges serving consumers in mainland China are unlawful, according to the bank, which is one method that traders there have gotten around a long-standing prohibition on local crypto exchanges.
Governments from Asia to the United States are concerned that privately controlled extremely volatile digital currencies might undermine their control of the financial and monetary systems, raise systemic risk, promote financial crime, and harm investors.
The crypto derivatives exchange FTX, a major crypto platform, said that it will relocate from Hong Kong to the Bahamas, which has “one of the world’s few complete crypto regulatory systems,” according to the exchange’s founder, Sam Bankman-Fried.
1) We're really excited to be setting up @FTX_Official's headquarters in The Bahamas!
a) The Bahamas is one of the few places to set up a comprehensive framework for crypto; FTX is registered
b) The Bahamas has emerged from COVID lively, safe, and without quarantine
— SBF (@SBF_FTX) September 24, 2021
Binance, the world’s largest cryptocurrency exchange, was launched in China by Changpeng Zhao in 2017, but relocated to Japan a few months later as Chinese authorities cracked down on cryptocurrency trading platforms. Following China’s crackdown on crypto mining in May, several Chinese miners have relocated to the United States and Kazakhstan. Industry analysts predict that cryptocurrency exchanges will step up their efforts to leave China.
Bitcoin, the world’s most popular cryptocurrency, fell by more than 9% before recovering. It is now selling at around $43,000. Smaller currencies, which are often used to replicate bitcoin, also fell in value. The sell-offs, however, are expected to be temporary, according to most experts.
Image: Gerd Altmann
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