China bans institutions from using or providing services related to cryptos
China tightens restrictions regarding cryptocurrencies, that ban financial institution and payment providers from delivering any kind of service related to cryptocurrencies. Moreover, China warned individual investors against very high speculative crypto trading.
This adds to China’s moves in 2017, closing down its local cryptocurrency exchanges.
- China’s decision to ban financial institutions and payment providers from delivering crypto-related services has caused a huge panic sell and thus a drop in the cryptocurrency market.
- On Tuesday three financial industry associations contacted their members, including banks and online payment providers, not to offer any crypto-related service. This includes registration, the opening of accounts, trading, settlement, and insurance.
- “Recently, cryptocurrency prices have skyrocketed and plummeted, and speculative trading of cryptocurrency has rebounded, seriously infringing on the safety of people’s property and disrupting the normal economic and financial order,” they said in the statement.
- Impact: Bitcoin started the day yesterday on slightly higher than $43,000 and dropped lower than $35,000 in few hours. This was a 30% drop that followed on Ethereum all the way to $2,200. Other cryptocurrencies including altcoins had the same impact.
On Tuesday three financial industry associations contacted their members, including banks and online payment providers, not to offer any crypto-related service. This includes, registration, opening of accounts, trading, settlement and insurance.
The new ban was announced by the People’s Bank of China (PBOC) and mentions a number of services that will not be allowed. The following were jointly introduced by the National Internet Finance Association of China, the China banking association and the Payment and Clearing Association of China.
- Institutions must not accept digital coins, or use them, and they can not provide exchange services between cryptos and the yuan or other fiat.
- Institutions are also prohibited from cryptocurrency savings or issuing of crypto-related financial products. Cryptos should not be used as investments in any kind of way by funds and trusts.
- Banks were also warned to increase the monitoring of money flows involving cryptocurrencies and all the risks that come with them.
“Recently, cryptocurrency prices have skyrocketed and plummeted, and speculative trading of cryptocurrency has rebounded, seriously infringing on the safety of people’s property and disrupting the normal economic and financial order,” they said in the statement.
China against Cryptocurrencies
In 2013, the Chinese government defined bitcoin as a virtual commodity and allows individuals to participate in its online trading. This didn’t last long since later in the year, financial regulators including PBOC, banned financial institutions from providing bitcoin-related services.
In 2017, China bans initial coin offerings (ICOs) in order to protect investors and eliminate financial risks.
By July 2018, 88 virtual currency trading platforms and 85 ICO platforms had withdrawn from the market, the PBOC said.
Why is China against virtual cryptocurrencies?
The government wants to protect individual investors from a highly speculative crypto market that is disrupting the normal economic and financial order.
Many Chinese investors were now trading on platforms owned by Chinese exchanges that had relocated overseas, including Huobi and OKEx.
China-focused exchanges, which also include Binance, allow Chinese individuals to open accounts online. They also facilitate peer-to-peer deals in OTC markets that help convert the Chinese yuan into cryptocurrencies. Such transactions are made through banks or online payment channels such as Alipay or WeChat Pay.
Binance’s native coin is BNB and yesterday it lost 50% of its value in just one hour. It went from an approximate $600 to $300. However, the news impacted the whole cryptocurrency market along with Bitcoin and Ethereum dropping dramatically.
The truth is cryptocurrencies’ potential threat to China’s fiat currency, the yuan, has spurred the PBOC to launch its own digital currency.
Bitcoin started the day yesterday on slightly higher than $43,000 and dropped lower than $35,000 in few hours. This was a 30% drop that followed on Ethereum all the way to $2,200. Other cryptocurrencies including altcoins had the same impact.
However, today cryptos are recovering from the panic with Ethereum currently being on $2,700 and Bitcoin $40,600. That’s 50% recovery.
Hong Kong’s Bitcoin Association said in a tweet in response to China’s reiterated ban: “For those new to bitcoin, it is customary for the People’s Bank of China to ban bitcoin at least once in a bull cycle.”
Winston Ma, NYU Law School adjunct professor and author of the book “The Digital War”, said the new rules were designed to completely cut crypto-related transactions out of China’s financial systems and expects the government to roll out new regulations targeting crypto assets.
Disclaimer – I/we have no position in any stock mentioned. I wrote this article myself, and it expresses my personal opinions. I am not receiving any compensation for it, other than FDGT Academy. I do not have or had in the past any business relationship with any company that is mentioned in the above article.
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