China comes close to banning cryptocurrencies

A pedestrian walking past a Hong Kong cryptocurrency exchange

Bitcoin transactions and services are now banned in China

(Image credit: © Paul Yeung/Bloomberg via Getty Images)

published 1 October 2021

Chinese regulators have moved one step closer to banning cryptocurrencies. On 24 September the People’s Bank of China (PBOC), the central bank, announced that “virtual currency-related business activities are illegal financial activities”. The bank blames cryptocurrency speculation for “breeding illegal and criminal activity”.

Beijing’s crackdown on cryptocurrencies has been going on since 2013, says Scott Nover for Quartz. Earlier this year it banned financial institutions from providing crypto-related services. That edict had sent Chinese bitcoin buyers onto overseas platforms instead. The new rules seek to close that loophole. “Crypto transactions and crypto services of all kinds are banned in China,” says Henri Arslanian of PriceWatehouseCoopers. “No room for discussion. No grey areas.” The measures don’t appear to amount to an outright ban on cryptocurrency possession, says Andrew Griffin in The Independent. But related activities are now heavily restricted. The PBOC has made clear that digital currencies are “not legal tender”. Bitcoin prices plunged by 6% on the news. But prices rebounded over the weekend, says Daren Fonda in Barron’s. Cryptocurrencies have made up the lost ground caused by the announcement.

Trading around $42,000 early this week, bitcoin has gained 30% since the start of the year but is down by one-third since hitting an all-time high in mid-April. A ban on transactions may not tank prices because “about 70% of all circulating bitcoin [is] now held by long-term holders, up from 59% in May”. For now, crypto markets appear to think that they can do without “China or its vast market”. Yet “whether that lasts remains to be seen” as other Asian countries such as Singapore also tighten the screws.