The Chinese Communist Party has certainly been keeping itself busy of late, and particularly concerning new technologies. The country is one of the world’s largest cryptocurrency markets, but the government has long been suspicious of bitcoin and its ilk, and officially banned trading back in 2019 (though it was able to continue through the use of foreign exchanges). Now the CCP has gone a step further: the People’s Bank of China today announced that all cryptocurrency transactions are illegal.
The translated statement is short and not-so-sweet: “Virtual currency-related business activities are illegal financial activities [and] seriously endangers the safety of people’s assets.” It makes explicit that engaging in such activities is now a crime and will be prosecuted, and that foreign websites offering such services to Chinese citizens are also illegal.
This has been coming: in May this year, government officials spoke out against continued trading in cryptocurrencies, and warned traders they would have no legal protection for their investments. In June the CCP instructed banks and payment platforms to stop all transactions and issued a ban on mining cryptocurrencies. The latter saw a huge shift in where certain cryptocurrencies like Ethereum are mined (and a lot of graphics cards suddenly appearing on the market), which is now primarily in the US (though 8.5% of Ethereum is still currently mined in China).
We are thus likely to see another shift over the next few months because, despite the restrictions, China until now has been such a big cryptocurrency market (cheap electricity and cheap electronics is an unbeatable combination). Cambridge University’s Bitcoin Electricity Consumption Index estimates that, in April 2021, China was responsible for 46.04% of global Bitcoin production: not as big as it once was, in other words, but still an absolutely massive player.
In the short term various cryptocurrencies have plunged in value, with bitcoin losing around £1500 / $2000 in price (it’s lost about 10% of its value in a week). But fluctuations are fluctuations and what this decision means for cryptocurrencies in the longer term is anyone’s guess—these are uncharted waters.
Messing with the CCP is not on any sane individual’s to-do list, and the people with the money to run these operations have the money to run them elsewhere. The CCP’s rationale has always been that cryptocurrencies are an unpredictable and foolish investment, as well as a means of money-laundering. Whether a government can effectively regulate cryptocurrencies out of its society is now an experiment-in-progress.