China Declares All Virtual Currency Transactions “Illegal”, Sending Crypto Prices Tumbling
The comments below are an edited and abridged synopsis of an article by Tyler Durden
China recently expanded its crackdown on cryptocurrencies when its central bank declared that all activities related to digital coins are illegal and must be banned. The PBOC said this was to prevent the risks surrounding crypto trading and to maintain national security and social stability.
It said that cryptocurrencies are issued by nonmonetary authorities, use encryption technologies and exist in digital form, and should not be circulated and used in the market as currencies. The PBOC targeted overseas cryptocurrency exchanges, declaring that it was illegal for them to provide online services to residents in China.
In May, a Chinese regulator pledged to crack down on Bitcoin trading and energy-intensive mining, helping to send the price tumbling (it rebounded). China’s financial regulators have gotten tougher on banks and payment companies, and have ordered them to take a more active role in weeding out crypto-related transactions.
This comes as a debt crisis involving China’s Evergrande Group looms, which many speculate will lead to a surge in capital outflows via cryptos that bypass China’s firewall.
One theory for the latest crackdown is that it is part of a broader law-and-order push ahead of the 100th anniversary of the Chinese Communist Party. Another theory is that China is clearing the way for its own digital yuan, a central bank digital currency that has been in development since 2014.
The most likely reason is that Beijing is looking to stop capital outflows via cryptocurrencies. Tether has allowed Chinese residents to launder over $1 trillion in domestic currency abroad. With turmoil surrounding the Evergrande default and imminent deterioration in the property sector, it is inevitable that Beijing fears a new flood of outbound capital transfers will follow, so it is taking preemptive steps.
