China has imposed a blanket ban on all cryptocurrency transactions and promised to eradicate digital asset mining, with its most severe blow to the industry.
The People’s Bank of China announced that cryptocurrency-related transactions would be considered illegal financial activity. Including services offered by offshore exchanges. Additionally, it stated that cryptocurrencies such as Bitcoin and Tether are not fiat currencies and cannot disseminate.
Bitcoin fell 8% to around $41,000 as of 9 a.m. in New York after the announcement.
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Cryptocurrency trading linked to fraud, money laundering, and inefficient energy usage. China currently prohibits banks from offering cryptocurrency-related services. Traders have shifted to over-the-counter platforms and offshore exchanges to circumvent such regulations.
“China’s prohibition on any cryptocurrency trading activities would have a short-term effect on the currency’s worth, but the long-term effects are likely to be subdued,” Ganesh Viswanath Natraj, an assistant professor of finance at Warwick Business School, said.
While there may be some Chinese onshore investors, Clara Medalie, says activity has shifted away from China.
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Crypto mining’s colossal energy consumption is also a factor in the industry’s skepticism. China’s economic planning ministry stated that eradicating crypto mining is a priority and that the crackdown is necessary to accomplish carbon reduction targets.
China is experiencing a severe power crisis, which has already wreaked havoc on commodities ranging from aluminum to steel. Several businesses have seen their power supply cut in recent weeks.
According to the Cambridge Bitcoin Electricity Consumption Index, the country is home to a sizable concentration of the world’s crypto miners and held a 46 percent share of the worldwide hash rate in April.
“The Chinese regulators have historically taken extreme positions, and these comments are not new,” said Vijay Ayyar, Asia Pacific CEO of bitcoin exchange Luno in Singapore.
“What’s fascinating is that they continue to make these assertions. It’s likely because they anticipate prolonged continuous activity in China and are thus force into overdrive,” he added.
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In May, China reintroduced a crackdown on cryptocurrency mining and trade. On a list of filthy industries to demolish in 2019, top officials for the first time singled out bitcoin mining.
As a result of the shift, cryptocurrency pricing fell precipitously, with Bitcoin losing half its value between April and July of this year. While the market has recovered some ground since then, it is still well below its all-time high of $63,000.