China’s central bank has declared all transactions involving Bitcoin or any other virtual currency illegal as part of a campaign to end unofficial digital currencies such as virtual Bitcoin.
On Friday, a government notice made a blistering attack against Bitcoin, Ethereum and other digital currencies which disrupt financial systems while being employed for money laundering and other crimes.
“Virtual derivative transactions in currency are illegal financial activities and strictly forbidden,” according to the People’s Bank of China website.
As soon as this news broke, Bitcoin saw its value decline by more than 9% to $41,085, alongside many other crypto-tokens such as Ethereum (- 10% from $3,100 to $2800).
Chinese banks were strictly banned from dealing with cryptocurrency in 2013, however a notice was sent out allowing for transactions nonetheless. This move came about due to concerns that official mining and trading of cryptocurrency could continue, potentially placing state-run financial institutions at risk from exposure.
Cryptocurrencies have become a popular investment option due to their anonymity and flexibility; however, Chinese authorities fear they could undermine the Chinese Communist Party’s authority over financial markets, potentially helping criminals hide proceeds of criminal activities.
The People’s Bank of China is developing an electronic version of China’s currency, the yuan, to enable cashless transactions that can be monitored and tracked by Beijing.
Regulators in other countries have warned more frequently of the need for greater oversight for cryptocurrency. Gary Gensler, head of the Securities and Exchange Commission in America has stated that investors need more security on the cryptocurrency market which he likened to being “rife with scams, fraud and misuse”, similar to “Wild Wild West.”
Gensler asserts that while the SEC has won several cases against crypto fraudsters, for effective regulation of this market it requires Congress to grant more resources and authority.
Regulators in China are seeking to limit cryptocurrency mining, an intensive process which uses vast quantities of energy in creating digital currencies. Because of this effort, Chinese miners have relocated their operations.
China was responsible for more than three-quarters of energy used in cryptocurrency mining a few years back, according to Cambridge Bitcoin Electricity Consumption Index. After their latest crackdown in April, their share had decreased to 46 percent – still higher than No. 2 nation United States with 17% usage.