China bans financial institutions and payment firms from servicing crypto transactions

Cryptocurrency market cap falls by over $800bn in wake of Musk criticism and Chinese ban

The Chinese government has banned financial institutions and payment firms from providing services related to cryptocurrency transactions, arguing that virtual currencies “are not supported by real value”.

Announcing the ban, three state-backed organisations, the National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China, observed in a joint statement:

“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.”

Chinese banks and payment companies are now prohibited from offering services involving cryptocurrency, including registration, trading, and clearing and settlement. Crypto-based saving, trust or pledging services are not permitted, along with the issue of financial products linked to cryptocurrencies.

The announcement follows a week in which bitcoin, the first and largest cryptocurrency, sank by more than 20%, in large part due to Tesla CEO Elon Musk’s critical social media posts.

Chinese authorities consistently opposed to decentralised currencies

The move is only the latest in a long line of efforts by the Chinese government to clamp down on the sector. With a far more advanced digital payments structure – and culture – than the likes of North America, Chinese citizens flocked to cryptocurrency in its early days.

In 2017, authorities shut down all of the nation’s cryptocurrency exchanges – at that point China accounted for 90% of the world’s bitcoin trading. In 2019, the People’s Bank of China announced its intention to block access to all domestic and foreign cryptocurrency exchanges and Initial Coin Offering (ICO) websites.

China set to use blockchain technology in digital yuan

China is set to become the first major economy to introduce a central bank digital currency (CBDC).

Seeking to retain the advantages afforded by the blockchain technology underlying cryptocurrencies, while avoiding their inherent decentralised nature, the ruling Chinese Communist Party has accelerated research and development of a digital yuan.

The launch is expected towards the end of the year.

Around 75% of the world’s bitcoin mining takes place in China, while the Chinese government possesses around 1% of the total bitcoin supply, thanks to seizures of fraudulent crypto schemes such as PlusToken.

By early afternoon on Wednesday, bitcoin and ether traded down by 12% and 23% respectively, at $38,682 and $2,722. In the past week, the capitalisation of the total cryptocurrency market has fallen from an all-time high of over $2.5trn to as low as $1.66trn, according to Coinmarketcap.

Further reading: Bitcoin falls below $40,000 for first time since February

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