Chinese regulators are serious about banning crypto this time

In the most extreme and outspoken statements ever made, on 24 September officials said that crypto transactions have been banned in China and they will root out the mining of digital assets. Almost immediately, popular offshore exchange Huobi stopped allowing new users to register with mainland China phone numbers and said in a statement on Sunday that it would “gradually retire existing mainland China user accounts” as of December 31. will do”.

“While this is no surprise as China has ‘banned’ crypto several times in the past, this time there is no ambiguity,” said PwC crypto leader and partner Henri Arslanian on Twitter. “Crypto transactions and crypto services of all kinds are banned in China. No room for discussion. No gray areas.”

The People’s Bank of China, along with nine other institutions including the Supreme Court, police and internet and securities watchdogs, released its Friday message, a sign that enforcement could be coming from all corners. It also closed a long-standing loophole that enabled citizens to maintain accounts with offshore exchanges such as Huobi, and prohibited platforms from hiring locally for roles such as marketing, technology and payments. This limited their ability to serve Chinese customers.

The regulator also specified that the stablecoin Tether, along with bitcoin, ether and other cryptocurrencies, is not a fiat currency. This is a new recognition of the role of stablecoins in crypto-to-crypto trading, and a sign that regulators have renewed interest in that activity, even if it does not directly affect the yuan.

Bitcoin fell 8.9% on Friday to around $40,700, but remained within its recent trading range and recovered some immediate losses over the weekend. Some crypto boosters noted that earlier attempts to ban cryptocurrencies often precede gains in bitcoin.

China’s top economic-planning agency called on local officials to investigate abnormal electricity use, call in loans and end preferential tax treatment to shut down mining operations.

Many miners have already moved out of China, which accounts for 46% of the global hash rate, according to the Cambridge Bitcoin Electricity Consumption Index, a measure of computing power used in mining and processing.

According to data from Blockchain.com, the hash rate has fallen by more than half from mid-May to early July since the action began. Its recovery indicates that the miners are back, whether inside China or elsewhere. The hash rate remained fairly stable shortly after Friday’s announcement.

Since holding cryptocurrency has yet to be made illegal, Bobby Lee, founder of crypto storage provider Ballet, said it remains to be seen whether the latest rules will be more effective than the previous ones, or what it means for those in need. who are the owners of such property.

“The PBOC has clearly stated this time that individual transactions will no longer be given the status of a legal protection,” Lee said. “Meaning if there is dispute or fraud, victims of personal transactions can no longer bring a legal case.”

Courts in China have previously recognized crypto as property, but PwC’s Arslanian wondered if that would change. Huobi customers will have to set up accounts elsewhere before the end of the year, which could be more difficult if other exchanges follow Huobi and Binance, which do not allow users to create accounts with mainland numbers.

In a post on Twitter, Arslanian said it is worth seeing how far China’s crypto users go to circumvent the new restrictions. It would be difficult to shut down access to the DeFi platform, prevent peer-to-peer trading of bitcoin or prevent residents from buying crypto, he said.