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China's makes all cryptocurrency transactions illegal in blow to Bitcoin and other tokens

China has been clampingdown on cryptos over the last few months.
China has been clampingdown on cryptos over the last few months.   -   Copyright  Getty via Canva
By Pascale Davies and Reuters

Authorities in China have ordered a new crackdown on all cryptocurrency mining and trading on Friday, according to a statement posted on the People’s Bank of China (PBoC) site.

China's Central Bank said all cryptocurrency transactions are illegal.

Cryptos, including Bitcoin, are not fiat currency and cannot be circulated on the market, the People’s Bank of China said on its website, adding it will ban financial institutions, payment companies, and internet platforms from facilitating crypto trading.

The central bank also said it intends to establish a mechanism for early warning and stopping "hype" in crypto trading and mining activities.

Following the announcement, Bitcoin's value shed almost 5 per cent, while Ether fell by more than 8 per cent.

Impact of US regulators

Cryptocurrencies started the week on a turbulent note after fears that Evergrande's troubles could lead to fallout for the Chinese and global economies, which has prompted a selloff in riskier assets.

The regulatory environment in the US is also affecting the crypto markets.

The top US regulator, the Securities and Exchange Commission (SEC), and primarily its chairman Gary Gensler, have made several comments recently about the SEC's role in potentially regulating crypto, particularly taking aim at some of the new lending products, staking and stable coins that have attracted a lot of interest from investors.

"Crypto markets are in an extremely frail state overall, and these sorts of downswings speak to that; there's a degree of panic in the air," Joseph Edwards, head of research at cryptocurrency broker Enigma Securities told Reuters.

"Crypto continues to exist in a grey area of legality across the board in China".

China's renewed crackdown on Bitcoin

China has for the past few months tried to clamp down on cryptocurrencies.

In May, Chinese authorities ordered a crackdown on crypto mining and trading and regulators banned financial institutions from offering services related to cryptocurrencies.

On August 27, Yin Youping, the Deputy Director of the Financial Consumer Rights Protection Bureau of the People’s Bank of China (PBoC), referred to cryptos as speculative assets and warned people to "protect their pockets".

Efforts to undermine Bitcoin - a decentralised currency outside the control of governments and institutions - are largely seen as an attempt by the Chinese authorities to float their own e-currency.

The PBoC is looking to be one of the first major central banks in the world to launch its own digital currency, and in doing so would be able to more closely monitor the transactions of its people.