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China expands crackdown by declaring all crypto activities ‘illegal’

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China has expanded its crackdown on cryptocurrencies by declaring that all activities related to digital coins are “illegal”. The People’s Bank of China and other government agencies targeted overseas cryptocurrency exchanges specifically on Friday, declaring that it was illegal for them to provide online services to residents in China. The move was an apparent bid to close a loophole that remained after the PBoC, China’s central bank, in May banned domestic financial institutions from providing cryptocurrency transaction services.

In the months since, Chinese traders have continued to invest in cryptocurrency using foreign platforms. The price of bitcoin fell more than 8 per cent immediately after the announcement, dropping to just over $41,000. The PBoC announced the crackdown on Friday in a notice issued jointly with nine other government bodies including the Cyberspace Administration and the Supreme People’s Court, China’s top court. The notice said that “there are legal risks for individuals and organisations participating in virtual currency and trading activities”. It added that all Chinese nationals working for overseas cryptocurrency exchanges would be “investigated according to the law”, as would organisations providing marketing, payment and technical support to them.

The PBoC said it would work alongside the ministry of public security and the internet regulator to clamp down on infractions, but it did not provide details on how the ban would be enforced. The PBoC added: “Recently, cryptocurrency speculation has increased, disturbing economic and financial order, breeding illegal and criminal activity such as gambling, illegal fundraising, fraud, pyramid schemes and money laundering. This all seriously endangers the people’s safety.” Despite China’s crackdowns, the country has remained an important global crypto market. Crypto wallets controlled by users thought to be in China received $150m worth of digital coins from January to June, “second only to the US”, according to a report from analytics providers Chainalysis. Henri Arslanian, crypto lead at PwC, said: “Most overseas crypto exchanges today do not accept clients based in the US. Now these same exchanges may have to ban clients based in China as well. For most global crypto exchanges, accepting China based clients was always a grey area. Now that ambiguity is gone.” But even if big exchanges become off-limits to China-based traders, Arslanian said the nature of crypto — including decentralised exchanges that gather little or no information about customers — meant it would be “very difficult to actually stop people from holding some in any country”.

The PBoC is separately preparing to unveil an official digital renminbi, making it a central bank pioneer in the area. The currency is due for a trial run during the 2022 Winter Olympics. Jason Guthrie, head of digital assets for asset manager WisdomTree in Europe, said: “China trying to ban crypto is just a continuation of a trend, but they’re ratcheting up the rhetoric ahead of the launch of the digital renminbi.” UBS Global Wealth said in a report that “China’s system-wide crackdown” had intensified recent volatility in crypto prices. Provincial governments in China have this year issued a series of bans on energy-intensive cryptocurrency mining activity.

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