Beijing (Associated Press)-The People’s Bank of China announced on Friday that all transactions involving Bitcoin and other virtual currencies are illegal, and has stepped up efforts to prevent the use of unofficial digital currencies.
Friday’s notice complained that Bitcoin, Ethereum and other digital currencies disrupted the financial system and were used for money laundering and other criminal activities.
The People’s Bank of China stated on its website that “virtual currency derivatives transactions are illegal financial activities and are strictly prohibited.”
Within a few hours of the announcement, the price of Bitcoin dropped by more than 9% to $41,085, as did most other cryptocurrencies. Ethereum lost nearly 10% between US$3,100 and US$2,800.
Chinese banks were prohibited from dealing with cryptocurrencies in 2013. However, the government reminded them this year. Official concerns that cryptocurrency mining and trading may continue are reflected in this ban.
Advocates of cryptocurrencies say they allow anonymity and flexibility, but Chinese regulators worry that they may weaken the ruling Communist Party’s control of the financial system and say they may help cover up criminal activities.
Beijing is currently developing an electronic version of China’s People’s Bank’s renminbi to facilitate cashless transactions.
Other countries’ regulators are warning that cryptocurrency requires greater supervision. In the United States, Gary Gensler, chairman of the US Securities and Exchange Commission, once stated that investors need more protection in the cryptocurrency market, which he called “full of fraud, scams and abuse” compared with the “Wild West”.
Although the US Securities and Exchange Commission has been sued in dozens of cases against fraudsters involved in crypto-related activities, Gensler believes that Congress needs to provide more funding and power to fully regulate this market.
Chinese regulators are trying to control cryptocurrency mining. It is a very energy-intensive process by which dedicated computers can create digital currency. Chinese regulators have made it clear that miners are moving out of China.
According to the Cambridge Bitcoin Electricity Consumption Index (two years ago), China alone accounted in excess of three-quarters all electricity used for cryptomining, the largest share anywhere in the world. China’s share of crypto mining electricity had dropped to 46% in April, just before the latest strike. This is still higher that the United States’ second-ranked country at just 17%.