China has announced that all cryptocurrency transactions are now classed as illegal finance activities.
China, which has one of the largest cryptocurrency markets globally, has outlawed the trading of cryptocurrencies. The nation cites digital currencies as volatile and a means of enabling money laundering. “Virtual currency-related business activities are illegal financial activities,” the People’s Bank of China said, warning it “seriously endangers the safety of people’s assets”.
Banning cryptocurrencies… again
Chinese banks were first banned from trading decentralized cryptocurrencies like Bitcoin in 2013. Though trading cryptocurrencies was again banned in 2019, it was able to continue online through foreign exchanges. In May of this year, Chinese state intuitions continued to warn buyers of the instability of bitcoin, emphasizing that buyers would have no protection as the government cracks down on trading. This recent announcement is the most direct it has been yet in its goal of shutting down cryptocurrency trading in all forms. The announcement noted that foreign websites that provide services to Chinese citizens would also be prosecuted for illegal activity.
Impact on the US
John Wu, president of Ava Labs, noted that the tightening of rules on crypto trading would “it could impact market volatility for [US] investors.” Following the announcement from China, Bitcoin dropped 4% in 24 hours, currently trading at US$43,020, according to CoinMarketCap. Ether has also fallen by 6%, with trading around $2,973, further illustrating the volatility of the market. US regulators and drawing more and more attention towards cryptocurrencies and its need for regulation.
Wu, however, suggests that the push on regulation may decrease the innovation taking place in the field: “Just as we’ve seen with bitcoin miners fleeing China and heading to the US in states like Texas and Wyoming, crypto startups will flood to crypto-friendly states and countries,” Wu says. “Taking reasonable, well-considered measures is a huge opportunity for the US to be a haven for the future of crypto, and entrench itself as a hub for the global economy in the decades ahead.”
There are others who believe regulation will provide the stability that investors need to take cryptocurrencies mainstream. Anjali Jariwala, the certified financial planner, certified public accountant and founder of Fit Advisors said: “I don’t see how an industry as big as crypto could continue to operate without any regulation or oversight. If people want crypto to become more of a mainstream asset, then I think [it’s] a necessary first step.”
The combination of regulatory pressures and nationwide bans do not paint a promising future for cryptocurrencies. “China’s latest move could really disrupt the evolution of crypto and not necessarily in the way it wants to,” Daniel Lane, a senior analyst at stock trading platform Freetrade, said.
“Sweeping and heavy-handed reforms might scare off crypto users in the short term but it might just prompt the industry to go back underground. A bit like the music industry found when illegal torrenting destroyed CD sales – eventually it’s more beneficial to innovate alongside user habits rather than fight them.”
Ultimately, cryptocurrency experts aren’t concerned that the ban will impact the US too heavily. “China’s actions haven’t held back cryptos rise too much in the past so I wouldn’t be surprised to see it bounce back once more”, Craig Erlam, a senior market analyst at forex broker OANDA said.
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“To think a ban will stop all activity is optimistic at best and quite naive at worst,” Lane said. “Ironically, taking a whole country out of open discussions on crypto’s evolution from here just means diehard corners of the market will recede into more nefarious practices rather than move further towards regulation.”