China cracks down on digital currency, orders financial institutions to end crypto services

The Chinese government has placed a ban on financial firms and payment institutions from offering services related to cryptocurrency transactions.

This was disclosed in joint a statement by three Chinese industry bodies overseeing the financial sector on Tuesday.

The bodies are the National Internet Finance Association of China, China Banking Association; and the Payment and Clearing Association of China.

The country also warned retail traders to be cautious of the risks involved in cryptocurrency investments while also calling on member institutions to abide by existing regulatory provisions regarding digital currencies.

Under the ban, banks and online payments channels must not offer clients any service involving cryptocurrency, such as registration, trading, clearing and settlement.

“Recently, crypto currency prices have skyrocketed and plummeted, and speculative trading of cryptocurrency has rebounded, seriously infringing on the safety of people’s property and disrupting the normal economic and financial order,” the statement read.

China also banned crypto exchanges and initial coin offerings (IOCs) but has not barred individuals from holding cryptocurrencies.

According to the statement, these institutions must not provide saving, trust or pledging services of cryptocurrency, nor issue financial product related to cryptocurrency.

China’s financial regulators also noted the risks of cryptocurrency trading, saying that digital currencies “are not supported by real value”, their prices are “extremely easy” to manipulate, and trading contracts are not protected by Chinese law.

This is not the first time the East Asian country is placing restricting measures against the digital currency. In 2013, the financial regulators banned banks and payment companies from providing bitcoin-related services.

In September 2017, China banned IOCs and cryptocurrency trading platforms in a bid to protect investors and curb financial risks.

Also in June 2019, the People’s Bank of China said it would block access to all domestic and foreign cryptocurrency exchanges and initial coin offering websites, aiming to clamp down on all cryptocurrency trading with a ban on foreign exchanges.

Following the announcement, the value of the world’s cryptocurrencies declined by 2.5 percent to about $50 billion, pushing this week’s staggering losses to roughly $500 billion from a Wednesday high above $2.5 trillion.

Similarly, Bitcoin dropped by 7 percent from its intraday high on Tuesday.