Chinese financial officials announced Tuesday that the country would crack down on financial institutions conducting cryptocurrency business or offering related services in light of the market’s recent volatility, marking another blow to the nascent market reeling from one of its biggest sell-offs ever after booming institutional adoption helped lift it to meteoric highs during the pandemic.
In a joint statement Tuesday, three Chinese industry groups overseeing the financial sector announced that bank and payment institutions can not conduct business related to cryptocurrencies, specifically banning a slew of activities including cryptocurrency registration, trading, clearing and settlement.
The guidelines, which reiterate a previous ban from 2017, also bar financial institutions from accepting or using cryptocurrencies in payments or settlements, developing digital currency exchange services and offering any such services to clients.
The announcement was released by three organizations authorized by Chinese regulators to oversee their respective industry segments: the National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China.
The group specifically laid into the cryptocurrency’s market massive volatility, saying digital tokens have “no real support value” and prices that are “extremely easy” to manipulate.
The move prohibits Chinese financial institutions, many of which had already shied away from offering crypto services amid the nation’s past crackdown, from issuing cryptocurrency products or services, but it doesn’t ban consumers from owning cryptocurrencies.
The value of the world’s cryptocurrencies dropped about $50 billion, or 2.5% immediately after the announcement, pushing the week’s staggering losses to roughly $500 billion from a Wednesday high above $2.5 trillion.
“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 Tuesday statement read. “Judging from the current judicial practice in my country, virtual currency transaction contracts are not protected by law.”
A wave of early regulatory crackdowns beginning in 2017 sparked a nearly 80% correction in cryptocurrency prices and a yearslong bull market that lasted until inflationary concerns and institutional adoption lifted the market to new highs during the pandemic. In March, Morgan Stanley became the first big bank in the U.S. to give wealthy clients access to cryptocurrency investments, and Goldman Sachs quickly followed suit with its own crypto offerings in April. JPMorgan and a slew of other smaller financial institutions have also reportedly indicated they may be next.
Cryptocurrencies soared nearly 500% over the past year as companies like Square, MicroStrategy and Tesla, in particular, started making big cryptocurrency investments, but in a testament to the market’s extreme volatility, prices have plunged by about 30% since Elon Musk said Tesla would stop investing in bitcoin last month.
What To Watch For
Regulation in the U.S. Gensler and Yellen. Earlier this month, new Securities and Exchange Commission Chair Gary Gensler suggested that the agency may be gearing up for a long-awaited crypto crackdown in light of the market’s recent boom, telling CNBC: “To the extent that something is a security, the SEC has a lot of authority, and a lot of crypto tokens—I won’t call them ‘cryptocurrencies’ for this moment—are indeed securities.”