China’s war on cryptocurrencies reaches a new level

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The People’s Bank of China announced the closure of a company that develops software services for virtual currency transactions. Additionally, the PRC Central Bank warned other businesses against any assistance to such organizations; including the provision of premises or marketing services. China’s fight against cryptocurrencies began at least in 2013; but until 2021, law enforcement has gradually softened after each new tough rule was applied.

In May of this year, China completely banned financial institutions and payment services from providing any services related to cryptocurrencies. In June, there were mass arrests of people that may be using cryptocurrencies for criminal purposes. Also, in the same month, local regulators increased pressure on banks and payment systems, banning any services related to cryptocurrencies, and the Chinese version of Twitter, Weibo, blocked accounts in one way or another related to cryptoassets. As of July, half of the world’s bitcoin mining companies have simply disappeared.

The reasons why China suddenly became very tough to any attempts to turn cryptocurrencies are still unknown. The most unusual theories, such as the one that the authorities are “putting things in order” for the centenary of the Chinese Communist Party, which falls on this year, apparently. More realistic are the assumptions that cryptocurrencies are widely used by criminals, are difficult to control, track transactions, and that the PRC intends to “clear the way” for its own digital yuan, which has been developing and testing for years. In theory, central bank digital currencies (CBDCs) allow you to track virtually any transaction in real time, allowing them to track any spending by any citizen. In addition, Beijing may be concerned about capital flight using third-party digital currencies.

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China’s war on cryptocurrencies

According to experts and market participants, China is just wasting efforts; and in the long term will even contribute to the development of cryptocurrency markets. After the bans, transactions and mining moved abroad, while the bitcoin rate remained relatively stable.

Recently, the Bitcoin exchange rate peaked in the last couple of weeks, having risen in price to $ 40,000; after the head of Tesla Elon Musk rejected criticism related to its influence on the cryptocurrency market. He stated that the company has sold part of Bitcoin, but may return to using it.

The course of the world’s most famous cryptocurrency has long and firmly been dependant on Musk’s statements. In February, the company acquired Bitcoin for $ 1.5 billion; and Elon Musk announced the sale of electric vehicles for him. Later, he also stated that the cryptocurrency would not be accepted due to the businessman’s concern about its impact on the environment due to the high energy consumption in the process of its “production” and circulation. Musk promised to return to consideration of possible transactions after receiving confirmation of the environmental safety of energy use by miners.

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