The People's Bank of China (PBOC) on Monday summoned representatives of multiple financial institutions – including Industrial and Commercial Bank of China Ltd., Agricultural Bank of China and the state-owned Ant Group's Alipay – and told them to "strictly implements" recent notices and guidelines from authorities that effectively prevent Chinese banks from engaging in cryptocurrency-related transactions.
Following the PBOC's order, the price of various cryptocurrencies started to slide.
Bitcoin slipped to $31,850, down 10 percent from Friday. This marked the coin's lower price since late January. Ether, the Ethereum blockchain's cryptocurrency and the second-biggest by market value lost 14 percent to move down to $1,920. Dogecoin, the "meme crypto" started as a joke in 2013 before shooting up in price earlier this year, slid 27 percent to about 21 cents in its eight consecutive daily decline.
In addition to blocking cryptocurrency transactions, the PBOC also ordered the financial firms to go through their systems and identify and investigate customers with accounts at virtual-currency exchanges that trade in crypto in the over-the-counter market. In these cases, the institutions must cut off the accounts' ability to send or receive money for the transactions.
Beijing is stepping up its nationwide campaign against virtual currencies and crypto. This comes after a powerful superregulator pledged to crack down on cryptocurrency trading and mining in the country.
The crackdown follows a spike in the price of Bitcoin, which traded at nearly $65,000 in mid-April. This surge was spurred on by celebrity advocates, including Tesla and SpaceX CEO Elon Musk, a longtime crypto evangelist. It has lost close to half its value since then.
Efforts to restrain the production or "mining" of bitcoin stem from concerns over its energy use. Mining uses banks of power-hungry computers to solve the complicated algorithms needed for a cryptocurrency's creation. (Related: BITCOIN GREENWASHING: No, Bitcoin mining isn't mostly powered by clean, renewable energy, but the cult-like self-delusion of Bitcoin apologists is itself a fascinating science experiment.)
In addition, Beijing is likely also unhappy with cryptocurrency's intrinsically uncontrollable, decentralized nature, especially as the country seeks to launch its own, centrally-controlled, virtual currency.
This isn't the first time China has cracked down on cryptocurrencies. Several years ago, authorities imposed bans on domestic cryptocurrency exchanges and digital-currency fundraisings, known as initial coin offerings. Payment providers and banks were also instructed by authorities to stop providing virtual currency trading and related services, while also closing crypto mines.
But despite Beijing's best efforts, China remains a hotbed for cryptocurrency mining.
Up to three-quarters of the world's bitcoin supply has been mined in China. At the same time, the Chinese people have continued to trade in bitcoin and other cryptocurrencies through peer-to-peer transactions involving direct money transfers between accounts.
Some crypto trading platforms operating offshore have also been facilitating trades between those who want to buy bitcoin with China's yuan. Here, buyers use accounts at banks or digital-payment providers to transfer money to people selling cryptocurrencies, without having to disclose the purpose of the transfer.
Peer-to-peer transactions, in particular, are difficult to track because they tend to be small-scale and anonymous. Jeffries analyst Chen Shujin says that this will make it harder for authorities to shut down these types of transactions.
"This will make it harder [for people to trade], but it won’t be able to completely shut down this type of transactions," she said, adding that some individuals could try to get around the rules by remitting funds overseas and conducting cryptocurrency transactions offshore in other currencies.
Follow Risk.news for more on China's regulatory moves against cryptocurrencies and what it means for the industry.