China bans cryptocurrency-related services

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China bans cryptocurrency-related services

The largest coin fell below $40,000 for the first time since early February. It fell by 10% on Wednesday to $38,973. Bitcoin price was triggered by Elon Musk’s back and forth comments on Tesla’s tokens.  Ether, Dogecoin, and Internet Computer, which caused a sensation last week, also retreated.

On top of that, China prohibits financial institutions and payment companies from providing services related to cryptocurrency transactions. It warns investors not to engage in speculative crypto transactions.

The official WeChat account of the People’s Bank of China issued a notice regarding the subject. According to the news, virtual currencies should not and cannot be used because they are not real currencies. The statement specified that financial and payment institutions must not use virtual currencies to price products or services.

The statement does not have any new regulatory measures. The announcement was prepared by industry associations rather than government officials, so the effectiveness of the notice was reduced.

On Tuesday, the three industries noted that in a joint statement under the ban. These institutions are banks and online payment channels. They cannot provide customers with any services involving cryptocurrencies, such as registration, trading, clearing, and settlement.

This development has occurred in the context of recent turbulence. After institutions drove its surge during the pandemic, the nascent market has retreated from one of its most significant sell-offs.

Why does China ban cryptocurrency transactions?

China has banned initial token issuance and crypto exchanges. However, it has not prohibited individuals from holding cryptocurrencies.

The statement also detailed that institutions must not provide cryptocurrency savings, trust, or mortgage services. They also cannot issue cryptocurrency-related financial products.

The statement also emphasized the risks of cryptocurrency transactions, saying that vital currencies are “not supported by the actual value.”  According to the notice, cryptocurrency prices are easily manipulated, and transaction contracts are not protected by Chinese law.

Since 2017, Beijing has canceled the initial token issuance and limited virtual currency trading within its borders. It has forced many overseas exchanges to trade. The country used to own about 90% of transactions. However, the significant share and major players in the mining industry have since fled abroad.

China has recently taken steps to issue its digital yuan to replace cash and maintain control of the payment structure. It has become less and less dominated by unregulated technology companies like banks.

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