Explainer: What Beijing’s New Crackdown Means for Crypto in China
Chinese regulators have tightened restrictions that ban financial institutions and payment companies from providing cryptocurrency-related services, marking a further crackdown on digital currency. Read more
Compared to a previous ban issued in 2017, the new rules significantly broadened the scope of the banned services and ruled that “virtual currencies are not supported by any real value”.
WHAT ARE THE NEW MEASURES?
Three financial industry associations on Tuesday ordered their members, which include banks and online payment companies, not to offer crypto-related services, such as account opening, registration, trading, clearing, settlement and insurance, reiterating the 2017 ban.
But the new ban, which was issued by the People’s Bank of China (PBOC), also covers services that were not mentioned previously.
For example, he clarified that institutions should not accept virtual currencies or use them as a means of payment and settlement. Institutions also cannot provide exchange services between cryptocurrencies and Yuan or foreign currencies.
Additionally, institutions were prohibited from providing cryptocurrency savings, trust, or pledging services and issuing crypto-related financial products. And virtual currencies should not be used as investment targets by trust and fund products.
Banks and payment companies have also been urged to step up monitoring of the money flows involved in cryptocurrency trading and coordinate more closely to identify these risks.
The guidelines were set out in a joint statement by the National Internet Finance Association of China, the China Banking Association, and the Payment and Clearing Association of China.
WHAT WERE THE PREVIOUS RULES IN CHINA AGAINST CRYPTOCURRENCIES?
China does not recognize cryptocurrencies as legal tender, and the banking system does not accept cryptocurrencies or provide relevant services.
In 2013, the government defined bitcoin as a virtual commodity and declared that individuals were allowed to freely participate in its online commerce.
However, later that year financial regulators, including the PBOC, banned banks and payment companies from providing bitcoin-related services.
In September 2017, China banned initial coin offerings (ICOs) in an attempt to protect investors and reduce financial risk.
The ICO rules also prohibited cryptocurrency trading platforms from converting legal tender into cryptocurrency and vice versa.
The restrictions have prompted most of these trading platforms to close and many overseas trading platforms.
The ICO’s rules also prohibited financial firms and payment companies from providing services for ICOs and cryptocurrencies, including account opening, registration, trading, clearing or clearing services. liquidation.
As of July 2018, 88 virtual currency trading platforms and 85 ICO platforms had withdrawn from the market, the PBOC said.
WHY HAS CHINA STRENGTHENED REGULATION
The global bitcoin bull run has boosted cryptocurrency trading in China.
Tuesday’s industry directive warned that speculative bitcoin trading had rebounded, undermining “the security of people’s property and disrupting normal economic and financial order.”
Many Chinese investors were now trading on platforms belonging to Chinese exchanges that had relocated abroad, including Huobi and OKEx. Meanwhile, the Chinese over-the-counter cryptocurrency market has become active again, while once dormant social media trading rooms have resumed.
China-centric exchanges, which also include Binance and MXC, allow Chinese individuals to open accounts online, a process that only takes a few minutes. They also facilitate peer-to-peer transactions in the OTC markets which help convert the Chinese yuan into cryptocurrencies. These transactions are made through banks or online payment channels such as Alipay or WeChat Pay.
Retail investors also buy “computing power” from cryptocurrency miners, who design various investment plans promising quick and significant returns.
Meanwhile, the potential threat of cryptocurrencies to China’s fiat currency, the yuan, has prompted the PCB to launch its own digital currency.
WHAT IS THE IMPACT OF CRACKDOWN?
The new crackdown makes it more difficult for individuals to purchase cryptocurrency using various payment channels and could impact the activities of miners by making it more difficult for them to trade cryptocurrency for cash. yuan.
But banks and payment companies also face challenges in identifying cryptocurrency-related money flows.
Winston Ma, assistant professor at NYU Law School and author of “The Digital War,” said the new rules were designed to completely remove crypto-related transactions from Chinese financial systems and expects the government to deploy new regulations targeting crypto assets. .
The Hong Kong Bitcoin Association said in a tweet in response to China’s repeated ban: “For those new to bitcoin, it is customary for the People’s Bank of China to ban bitcoin at least once. in a bullish cycle. “
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