Chinese government, media, and expert responses to the country’s crackdown on Bitcoin has ranged from the carefully but sternly worded to what many deemed the outrageous—though all seemed to be in support of Beijing wrangling the digital currency as China gears up its own digital yuan.
China said on Monday its central bank summoned several big banks and Ant Financial’s digital payment platform Alipay to government offices, directing them to strengthen existing bans on cryptocurrency trading—yet another move in a sprawling campaign to rein in what officials fear could manifest as financial instability.
The People’s Bank of China called in the country’s largest bank—the Industrial and Commercial Bank of China—as well as China Construction Bank (ticker: 939: Hong Kong), the Agricultural Bank of China (1288: Hong Kong), Postal Savings Bank of China (1658: Hong Kong) and Alipay, and told them cryptocurrency services “disrupt financial stability and increase the risk of illicit activities such as cross-border asset transfers and money laundering,” the central bank said in a public statement Monday. The institutions must refrain from providing cryptocurrency-related services, it said.
China in recent months has summoned a range of players in various online sectors and warned them over topics that include monopolistic practices and poor treatment of workers. But all the meetings have included the theme of financial stability. Those firms included e-commerce leader Alibaba (BABA) and online delivery giant Meituan .(3690: Hong Kong)
The most headline-grabbing move this week was the precipitous fall in Bitcoin’s price as China cracked down on so-called cryptocurrency mining across the country. Bitcoin has lost roughly 20% over the last week as China forbids the blockchain technology that underpins such digital currencies.
On Tuesday, Bitcoin temporarily fell below the much-watched $30,000 level, putting it in negative territory for the year. It has since risen back up to nearly $31,000.
But strictures on cryptocurrencies in China has been a theme for years, even as it has gathered steam in recent weeks.
As far back as 2013, China banned financial firms from engaging in Bitcoin transactions. In 2017, authorities made so-called initial coin offerings—essentially IPOs for a new digital currency—illegal, and it banned domestic exchanges from trading yuan for digital currencies.
Then last month, China’s cabinet publicly said it would crack down on cryptocurrency mining and trading as part of a sweeping campaign to minimize financial instability. After that announcement, officials closed mining operations in China’s Inner Mongolia, Xinjiang, Qinghai, and Yunnan regions.
Bitcoin took its big wallop, however, after numerous mining operations were shut down over the weekend in the province of Sichuan, which is rich in hydropower used in much of the energy-intensive technology. State media outlet the Global Times was the first to report the Sichuan closures.
“Some industry players had hoped that regulators in Sichuan, where hydropower is abundant, could take a softer approach,” the Global Times said.
Observers said the timing of the mining shutdowns was unlikely random.
“Beijing’s recent crackdown on Bitcoin could be driven by both the desire to reduce competition for its upcoming central bank digital currency, and also to have general financial stability,” Bobby Lee, founder and CEO of cryptocurrency wallet app Ballet, and author of “The Promise of Bitcoin,” told Barron’s on Tuesday.
Chinese experts and official media have largely been in lockstep with the government line. Weeks ago, a leading Chinese economist issued a warning over Bitcoin so dire that it provoked mockery on social media.
Qu Qiang, assistant director at the International Monetary Institute of Renmin University, one of China’s top schools, was asked by official state outlet CGTN, “Can you give me the worst scenario, what kind of a systemic shock it will give to the current financial system if Bitcoin is widely used in China or the rest of the world?”
“I can tell you exactly what’s going to happen. We’re all going to die. This is not a joke,” Qu said.
He elaborated that “Bitcoin has a very, very strict, limited total number, which means this is a deflation currency, so it would not grow its amount,” and could result in “a death spiral of deflation.”
Qu also serves advisory roles at several of China’s biggest banks and at the Ministry of Education.
When Ballet’s Lee was asked about the prospects for Bitcoin and other digital currencies from the continuing regulations, he told Barron’s: “It’s been well known that cryptocurrency trading has lots of volatility, and short term traders can often lose large amounts of money quickly if they bet wrong. As this new enforcement policy takes hold, I think prices will continue to stay under pressure. However, this bad news could be the catalyst to eventually lift the market out of the current price correction cycle.”
Hot
No comment on record. Start new comment.