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China's central bank declares all cryptocurrency transactions illegal

Beijing's announcement sent cryptocurrencies tumbling.

China's flag in front of the Great Wall
Artur Widak/NurPhoto

China's Central Bank on Friday declared all cryptocurrency-related transactions illegal in an intensification of the country's crackdown on the trillion-dollar industry.

"Virtual currency-related business activities are illegal financial activities," a statement on the People's Bank of China website reads.

According to the notice, Beijing will ban all financial institutions, payment companies and internet platforms from enabling cryptocurrency trading. In addition, China's central bank is seeking to target foreign exchanges, declaring "the provision of services by overseas virtual currency exchanges to Chinese residents through the internet" to be illegal.

The announcement sent cryptocurrencies tumbling, with Bitcoin plunging below the $42,000 level before stabilizing, while Ethereum, the second largest cryptocurrency, tumbled more than 10% to below the $2,800 mark. Global cryptocurrencies have seen volatile fluctuations this year partly driven by China's regulations as Beijing seeks to clamp down on the industry.

Cryptocurrency trading has given rise to the disruption of "economic and financial order, breeding illegal and criminal activities such as gambling, illegal fund-raising, fraud, pyramid schemes and money laundering, and seriously endangering the safety of people's property," the bank's statement says.   

"This isn't the first time China has threatened action, and, thus far, it has failed to follow through," said George Monaghan, analyst at GlobalData's thematic team. "The next few weeks will be rough for crypto markets that were already on edge after the SEC's recent comments, but only actual legislation will have a long-term effect."

China has long expressed its disapproval over cryptocurrencies due in part to their links to money laundering and exorbitant energy consumption. Earlier this year, Chinese officials reaffirmed an old ban that forbids financial firms from actively aiding in the mining and selling of cryptocurrencies. Beijing also moved to clamp down on digital currency mining, which use tremendous amounts of energy, and currency exchanges in the country as well as overseas. Although Beijing is shunning Bitcoin, Ethereum and other cryptocurrencies, China is seeking to be one of the first countries to roll out its own digital currency, the e-yuan