The Chinese government started a new wave of repression of cryptocurrencies in the country, continuing the bans it has already imposed on the sector in the past, in 2013, 2017 and May 2021.
The People’s Bank of China, together with the country’s main financial regulators, released on Friday (24) a document called “Notice on the Prevention and Elimination of Risks in Virtual Currency Transactions” in which it announces the tightening of measures to repress negotiations of Bitcoin and other cryptocurrencies in the Asian country.
The point that draws the most attention in the document is a new understanding that any person or company that facilitates the negotiation of bitcoin and other cryptocurrencies in the country is breaking the law.
The text states that “the provision of services to foreign exchanges to Chinese residents over the internet is an illegal financial activity” and those who engage in this activity will be investigated in accordance with the law.
The Central Bank has explicitly said that cryptocurrencies such as Bitcoin, Ethereum (ETH) and Tether (USDT) “are not legal, should not and cannot be used as currency in the market”, stating that all “commercial activity related to virtual currency is illegal” .
The agency once again reinforced a request it had already made in June for the country’s financial institutions to help fight cryptocurrencies, preventing their clients from making transactions to foreign exchanges and over-the-counter (OTC) markets.
China attributed the tightening of measures to the rise in the popularity of cryptocurrencies in the country, which “seriously endangers the security of people’s property” and “grows criminal activities such as gambling, illegal fundraising, fraud, pyramid schemes and money laundering”.
At this pace, the document indicates that ordinary people who lose money in investing in cryptocurrencies will no longer be protected by law.
Keeping an eye on exchanges
Chinese journalist Colin Wu, one of the biggest references in the coverage of the cryptocurrency market in the country, told the Bitcoin Portal that it is still difficult to see in practice what changes in the cryptocurrency market with the new wave of repression in China.
“We have to wait, it’s hard to say now. The expectation is to find out how big exchanges like Huobi and OKEx will tackle this, as they still operate OTC tables here. They have a strong government relationship and will make a rational choice”, he explained.
He pointed out that it is already possible to identify that most Chinese companies operating in the cryptoactive sector are looking for friendlier jurisdictions to base their operations on, such as Singapore.
“Singapore is open and tolerant of cryptocurrencies, not just Chinese companies, but many international companies in the area are also moving there, such as 3ac,” explained Wu. “Another reason is that Singapore’s culture is similar to China.”
The government’s hardening has already been able to scare some market participants. The world’s largest Ethereum mining pool, the Spark Pool, announced today that it will no longer provide its services to users in mainland China as a way of “complying with the latest industry regulatory policies.”
Second Wu, the popular NBMiner mining software also confirmed that it will no longer offer technical support services to Chinese customers.
Attack on miners intensifies
At the same time as the Central Bank issued the new restrictions, China’s state planning body, the NDRC, also issued a “Virtual Currency Mining Rectification Notice” that focuses on combating mining.
The text orders electricity providers to stop serving miners through hotlines and increase the cost of energy to $0.05 per kilowatt-hour for identified miners.
The NDRC also urges local authorities to increase the search for illegal mining farms and generally crack down on activities in their territories as a way of phasing out the industry.
According to Colin Wu, larger miners are likely to continue the trend started during the May crackdowns and leave China to operate in other countries such as the United States.
“Meanwhile, small miners must find some factories to mine secretly. If they cannot find a safe place, they will probably have to sell their machines,” he told the report.
Bitcoin remains resilient in the long run
Bitcoin prices were not immune to this Friday’s negative news coming out of China. According to CoinMarketCap, the currency has devalued 3.6% in the last 24 hours, trading at US$42,220.
Although it is already common for the price of bitcoin to react negatively to the Chinese government’s statements, the drop tends to be a passing event, with the cryptoactive being able to recoup its losses in the long run.
According to data from Kraken disclosed by analyst Pete Humiston, bitcoin typically appreciates an average of 53% about 90 days after the FUD news — fear, uncertainty and doubt — departs from China.