Crypto markets have been sent crashing around the globe today, including the immensely popular Bitcoin. The directives – which ban financial institutions and payment companies from providing services related to cryptocurrencies – were made in a joint statement from the National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China.
But why have China decided to ban crypto coins?
Why has China banned cryptocurrency like Bitcoin? The ban follows the global Bitcoin bull run which revived cryptocurrency trading in China.
A bull run, sometimes called a bull market, is when a financial market sees prices continually rising or expected to rise. Cryptocurrency like Bitcoin and Dogecoin – the meme coin championed by Elon Musk – had soared in value of late during this bull market, with one Bitcoin worth $42,575.43 (£30,090) at the end of May 18.
To combat this, in their statement, the three financial industry associations in China explained they were restricting Bitcoin trading because the volatile price changes meant it was ‘infringing on the safety of people’s property and disrupting the normal economic and financial order.’ Not 24 hours later and China’s ban has seen the price of a Bitcoin drop to $38,178 (£26,974) – and prices continue to rise and fall with instability. Analysts and experts can only speculate about whether crypto will regain any of its bull market value – as history has shown us, cryptocurrency can often shock even the most savvy financial expert.
This isn’t the first time China has issued restrictions on crypto markets. In September 2017, China banned Initial Coin Offerings (ICOs) in a bid to protect investors and curb financial risks. The ICO rules also banned cryptocurrency trading platforms from converting legal tender (cash) into cryptocurrencies and vice versa.
The ICO rules also barred financial firms and payment companies from providing services for ICOs and cryptocurrencies, including account openings, registration, trading, clearing or liquidation services. What’s different with this crypto currency ban? The new ban, which was posted by the People’s Bank of China (PBOC), also covers services that were not previously mentioned.
For example, it was made clear that institutions must not accept virtual currencies or use them as a means of payment and settlement – nor can institutions provide exchange services between cryptocurrencies and the yuan or foreign currencies. Institutions were further banned from providing cryptocurrency saving, trust or pledging services and issuing crypto-related financial products, and virtual currencies were prohibited from being used as investment targets by trust and fund products.