China Renews Crackdown on Cryptocurrencies

Three state-backed associations representing internet firms, banks, and payments companies have barred their members from providing crypto-related services to customers.

Three Chinese associations have jointly issued a notice calling for a complete ban on financial institutions and payment companies providing cryptocurrency services to customers, directly or indirectly, including the acceptance of cryptocurrency as payment.

NIFA (National Internet Finance Association of China), CBA (China Banking Association), and PCAC (China Payment and Clearing Association) say cryptocurrency speculation has “seriously infringed on the safety of the people’s property and disrupted the normal economic and financial order”.

Collectively, the three associations represent internet firms providing financial services, banks, and payments companies.

The associations say they are seeking to implement the requirements of notices previously issued by the PBOC (People’s Bank of China) and other government agencies, which prohibited financial institutions and payments firms from conducting Bitcoin-related or ICO business.

“Cryptocurrencies are a specific type of virtual commodity that are not issued by a monetary authority, do not possess the qualities of money such as statutory status, are not real money, and should not be employed as money for circulation in the market,” the notice said.

Financial institutions, payment institutions and other members of the three bodies are directed not to use cryptocurrencies to price products and services, underwrite insurance businesses, or provide services to customers – including registration, trading, clearing, settlement, exchange, custodial, savings, trust or pledging services.

Further, banks and payment firms are asked to strengthen monitoring and information-sharing, restrict or suspend transactions suspected of being related to cryptocurrency, and report transactions that violate the law to authorities.

The notice also warns investors about the risks of speculating in cryptocurrencies and urges them to be wary of scams.

The scam warning comes after police in Anhui province said they busted a digital currency pyramid scheme involving around 2,000 people and over CNY 200 million.

The pyramid scheme is said to have been in operation since 2016, deceiving individuals into purchasing digital currency where the ledger and market value were manipulated. Eight suspects have been arrested in the case.

Meanwhile, the Inner Mongolia Development and Reform Commission, which has recently launched a campaign to “clean up and shut down” cryptocurrency mining projects in a bid to cut carbon emissions, has announced that it has set up a new reporting platform for residents to report on illegal mining projects.

China is known to be the world’s biggest Bitcoin mining nation, accounting for an estimated 65 percent of the total global Bitcoin hashrate. The Inner Mongolia autonomous region is the country’s third-largest bitcoin mining area, accounting for about 8.1 percent of the global hashrate.

The announcement says the focus is on crypto mining companies that “pretend to be data centres” to enjoy preferential tax, land, and electricity pricing policies, firms that rent out facilities for crypto mining operations, and those that obtain electricity through illegal means to engage in crypto mining business.

The new reporting platform offers strict confidentiality to whistleblowers from “all sectors of society” who report on mining operations in the province.

The crackdown prompted a plunge in prices of major cryptocurrencies driven in part by forced sales of cryptocurrencies pledged as collateral for financing on DeFi blockchain platforms. Bitcoin fell by as much as 30 percent to USD 30,000 on Wednesday (19 May). Internet meme token Dogecoin lost as much as 50 percent.

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