Why did China ban Cryptocurrencies Transactions and How it affected the market?

Alan Joseph Alan Joseph
May 21, 2021 4 min read
Why did China ban Cryptocurrencies Transactions and How it affected the market?

One of the major countries in the world China has banned any transactions and financial products related to cryptocurrency in the country. The Chinese government had earlier bought certain regulations towards these financial assets. Let’s look at the reason for the ban and how it has affected the cryptocurrency market.

About the Ban on Cryptocurrency by China
Earlier Restrictions by China on Cryptocurrency
The Recent Regulations of China on Cryptocurrency
Impact of the Regulation by China on the Businesses of Cryptocurrency
FAQ

About the Ban on Cryptocurrency by China

The regulators of China have increased the restrictions on the financial institutions and the payment companies from providing various services that are related to cryptocurrency which is a fresh crackdown on the cryptocurrency market.

Most of the new rules laid down by the regulators are considered to be an extension of the previous ban and are expected to fill the loop holes that were present after the previous restrictions in the country which allowed certain payment firms and financial institutions to continue in the cryptocurrency field.

Earlier Restrictions by China on Cryptocurrency

The earlier restrictions made clear that China had considered cryptocurrencies to be an illegal tender and did not accept the digital coins or provide any services related to it.

In the year 2013, the Chinese government had defined bitcoin to be a virtual commodity and allowed their citizens to trade the digital coins. But later in the same year, the financial regulators of China including the PBOC had banks and other financial companies from providing any services related to bitcoins.

Later in the year 2017, the country had banned Initial Coin Offerings (ICOs) in order to eliminate the financial risk and to save the investors of their country. The ICO rules also banned the cryptocurrency exchanges to convert the legal tenders into cryptocurrencies or converting cryptocurrencies into legal tenders.

The restrictions that were laid down in 2017 had let a lot of cryptocurrency exchanges and the trading platforms to shut down and shift their services from China to other countries. According to a report from PBOC around 88 virtual currency trading platforms and around 85 ICO platforms had withdrawn from the market by 2018.


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The Recent Regulations of China on Cryptocurrency

Three financial industry Associations have directed all the financial institutions and payment companies to not offer any services related to cryptocurrencies to their clients such as currency exchanges, trading, registration, clearing and settlement.

Additionally, the institutions were banned from providing cryptocurrency trust, saving or pledging services or even issuing any financial products related to cryptocurrencies. Even the services related to cryptocurrencies such as insurance and derivatives trading is also banned in the country.

The decision was taken collectively by three major regulators of China which include the China Bank Association, the National Internet Finance Association of China and the Payment and Clearing Association of China. The decision was posted by the People’s Bank of China (PBOC).

The firms are also asked to step up in monitoring the flow of money which are involved in cryptocurrency trading.

China Ban on Cryptocurrency
China Ban on Cryptocurrency

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Impact of the Regulation by China on the Businesses of Cryptocurrency

The new regulations bought in by China have made it difficult for the individuals to buy cryptocurrencies using various payment channels and this could also impact the businesses of the cryptocurrency miners in the country by making it harder for them to exchange the mined cryptocurrencies for Yuan.

Even the banks and the financial institutions will face challenges in analyzing the flow of money that is related to cryptocurrency. In response to the regulations laid down by China, the bitcoin association of Hong Kong had replied to their tweet saying for the people who are new to bitcoin, it is compulsory for the People’s Bank of China to ban bitcoin at least once in a bull run.

After a day on the ban of cryptocurrencies in China there has been a fall in value of cryptocurrencies such as bitcoin, Ethereum, Binance coin, Dogecoin, Litecoin, Polkadot and many others.

The bitcoin has been the lowest price since January 2018. The market capitalization value of the cryptocurrencies had declined from USD 2.5 trillion to USD 1.5 trillion which is a 38 % contraction.

FAQ

What did China say about Cryptocurrency?

The People's Bank of China reportedly said virtual currencies can't be used as a form of payment because they aren't real currencies.

Why is Cryptocurrency banned in China?

China banned Cryptocurrency to curb money laundering.

No, It is not legal to buy Bitcoin in China.

Conclusion

Chinese regulators consider cryptocurrencies to be a potential threat to their national currency Yuan. This had led the People’s Bank of China to launch its own digital currency. The regulations is expected to create a negative impact on a lot of people that are related to the cryptocurrency market.

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