China declares all crypto-related transactions illegal and forbids overseas exchanges from serving its citizens

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China’s central bank declared all cryptocurrency-related transactions illegal on Friday, and said foreign exchanges are banned from providing services to Chinese residents, in its strongest crackdown move yet on the digital asset industry.

Coins such as bitcoin and ether “are not legal and should not and cannot be used as currency in the market,” the People’s Bank of China said in a statement.

Virtual currencies do not have the same legal standing as fiat currency as they are issued by non-monetary authorities and use encryption technology, it said.

Bitcoin dropped 5.7% to about $41,110 in the wake of the announcement, according to data from CoinDesk. Ether lost 9% to hit $2,788, ada declined 3% to $2.16 and Ripple’s XRP moved 7% lower to 92 cents. Dogecoin fell 8% to 20 cents.

Activities considered illegal cover a range of operations, such as buying and selling virtual assets as a central counterparty, and providing intermediary or pricing services for crypto transactions. It also includes token issuance financing, crypto derivatives transactions, and other activities suspected of illegal sale of tokens.

“Those who carry out related illegal financial activities (that) constitute a crime shall be investigated for criminal responsibility in accordance with the law,” it said.

The central bank specifically called out the services offered by offshore crypto exchanges to Chinese customers via online platforms.

“The provision of services by overseas virtual currency exchanges to Chinese residents through the internet is also an illegal financial activity,” it said.

In its directive, the central bank said the hype around crypto has disrupted financial order in China, and provided a breeding ground for fraud, gambling, money laundering and pyramid scheme scams.

National regulators – including the Central Cyberspace Administration, the Supreme People’s Court, the Ministry of Industry and Information Technology, and the Ministry of Public Security – plan to work together on these issues, it said.

China’s latest move could disrupt the evolution of crypto, but not necessarily in the way it wants to, according to Daniel Lane, senior analyst at UK-based fintech Freetrade.

“China’s actions will undoubtedly prove a big short-term blow to crypto, but it is most definitely not the end,” Lane said. “The sector is moving at lightspeed and has already evolved beyond most people’s understanding of bitcoin. To think a ban will stop all activity is optimistic at best and quite naive at worst.”