China will crack down on bitcoin mining and trading activities as part of efforts to avoid financial risks, the State Council’s Financial Stability and Development Committee said on Friday.
The country will also crack down on illegal activities in the securities market and maintain the stability of the stock, bond and foreign exchange markets, the committee said at a meeting chaired by Deputy Prime Minister Liu He.
The statement, released a few days after three Chinese industry bodies tightened the ban on banks and payment companies providing cryptocurrency-related services, marks a strong escalation of movements against virtual currencies.
Liu is the most senior Chinese official to publicly order a crackdown on bitcoin, and it is the first time that the state council has explicitly targeted crypto mining activities.
Bitcoin prices have fallen sharply again with the news and are underway for weekly losses of more than 15%, as is Etherium.
Investor protection and the prevention of money laundering are specific concerns of governments and financial regulators who are struggling to decide whether and how to regulate the cryptocurrency industry.
Hong Kong previously proposed that the city’s market regulator’s license cryptocurrency exchanges only allow them to provide services to professional investors.
As Jehan Chu, managing partner of Hong Kong blockchain venture capital firm Kenetic Capital said:
While some degree of cryptocurrency is unavoidable, these overly restrictive policies will result in stifled opportunities and the industry’s flight away from Asia
Chinese state broadcaster CCTV on Friday warned of the “systemic risks” of the cryptocurrency trade in a comment on its website.
Bitcoin is no longer an investment tool to avoid risk. Instead, it is a speculative instrument
The broadcaster further added that cryptocurrency is a poorly regulated asset, often used in trade in the illegal market, money laundering, arms smuggling, gambling and drug negotiations.
Virtual currency mining is big business in China, accounting for up to 70% of the world’s crypto supply, according to some estimates, although others say that proportion has dropped in recent years.
China’s crackdown on mining “will have profound implications for global cryptocurrency markets,” said Winston Ma, an adjunct professor at NYU Law School and author of the book “The Digital War”.
Shares in Chinese cryptocurrency mining platform makers, including Canaan Inc and Ebang International Holdings, also fell in the New York trades.
China has banned cryptocurrency exchanges and initial coin offers, but has not prevented individuals from holding cryptocurrencies.
Friday’s statement also said China’s prudent monetary policy would be flexible, targeted and appropriate, while keeping the yuan’s exchange rate basically stable at reasonable and balanced levels.