China bans Bitcoin and Co

China on Friday banned all types of crypto transactions and stepped up its efforts to stop crypto mining. The crypto market is still looking for a reaction.

Anyone who previously believed that China would find a drastically regulated, but otherwise relatively liberal approach to dealing with cryptocurrencies is mistaken. On Friday, the People’s Bank of China, the country’s central bank, published a statement on their websitethat leaves nothing to be desired in terms of clarity.

From now on, crypto transactions of all kinds are to be viewed as illegal financial activities and accordingly prosecuted, the bank announced. This should also include all services that are offered by crypto exchanges outside the country. Cryptocurrencies may no longer be brought into circulation.

The ban is the toughest step China could take against cryptocurrencies, but it doesn’t come as a complete surprise. In recent years, China has always emphasized that cryptocurrencies are maximally tolerated in the People’s Republic, but are in no way desired. They use up too much energy and, moreover, are too often misused with fraudulent intent, such as money laundering.

In the summer, the Chinese government searched province after province for miners and ultimately turned off the power to industry. There are still miners who have escaped the previous measures. They may have hoped they could just sit out a difficult phase. But today’s statement shows that this will not work.

Now the time should have come when crypto miners finally turn their backs on the country. The finish had been visible for months. While China still had a 75 percent share of the global hash rate, a measure of the computing power used in mining and processing, in September 2019, this share fell to 46 percent in April and has continued to decline ever since.

Unfortunately the Bitcoin mining map Cambridge University has not updated since April, making actual runoff difficult to assess. However, observers unanimously see a significant migration since May 2021 at the latest.

Bitcoin and other cryptocurrencies reacted to the news from the Middle Kingdom with some significant price losses. So far, however, there has been no crash. Bitcoin has lost a lot of almost six percent, but not more than on other occasions.

Ethereum is already showing more nervousness at around nine percent. Solana, Avalanche, the Binance Coin, Ripple’s XRP and the indestructible Dogecoin also lose significantly. The reasons for this are multifactorial and can by no means be fully attributed to the Chinese crackdown. Full of the Chinese crackdown, however, we can justify the crash of stocks in various mining companies. The papers of the major miners Riot Blockchain and Marathon Digital Holdings also gave in spontaneously by eight percent.

The truth, however, is that China’s tightened action against the crypto market was a major reason for the widespread and massive price losses from the second half of May. The recent uncertainties surrounding the Chinese real estate giant Evergrande had also had a significant impact on crypto rates. To expect that a Chinese crypto ban will come off without affecting prospects would be pure wishful thinking. Only the knee-jerk reaction of the market seems to be spared us at first.

The new blow comes at a time when the cryptocurrencies seemed to be recovering again – albeit highly volatile – after the massive setback in May and June. This upswing is likely to have slowed down for the time being, if not over. The exciting question remains how much nervousness the large investors can take before the sell-off occurs?