China's central bank ordered officials from the country's largest banks to reinforce a ban on cryptocurrency services
A statement from the People's Bank of China (PBOC), released Monday, June 21, said that representatives from the Industrial and Commercial Bank of China Ltd., Agricultural Bank of China and internet payment provider Alipay were summoned to a meeting where they were reminded of rules preventing Chinese banks from engaging in cryptocurrency-related transactions.
According to the statement, the inquiry was focused on services provided to assist speculative trades in virtual currencies. It added
that such activities "disrupt financial order and also breed risks of criminal activities like illegal cross-border asset transfers and money laundering."
The statement also said that the institutions were also ordered to cut off payment channels for crypto exchanges and over-the-counter platforms.
China moving to block cryptocurrencies
The meeting is the latest sign that Chinese authorities will do whatever it takes to close any loopholes left in crypto trading. The country has longstanding rules that bar banks and other financial institutions from offering crypto-related services.
But in recent years, individuals have moved to trade cryptocurrencies on over-the-counter platforms and even offshore exchanges.
This has caused concern among authorities who're wary about not only the industry's carbon footprint but of its intrinsically uncontrollable, decentralized nature. In May, the State Council – China's cabinet – called for a renewed crackdown on Bitcoin mining and trading activities. (Related: Treasury to crack down on "illegal activities" in cryptocurrency markets and transactions, ignoring the fact that most crimes are carried out in DOLLARS
In response, the financial companies have pledged to step up inspections into crypto activity and close related accounts. In addition, they stated that they would not offer account opening, clearing or settlement to assist in crypto trading.
PBOC statement causes drop in crypto values
The statement rocked cryptomarkets, causing the values of some coins to plummet
Bitcoin is now trading 10 percent lower at just below $32,000. This extends its 8.7 percent decline from last week. Meanwhile, Ether, the second-largest cryptocurrency by market value, is only trading at $1920 at press time. the lowest level ether has been at since May 23. The
Other top cryptocurrencies, such as cardano, polkadot and XRP, are also nursing losses ranging from 5 to 10 percent.
The drop is also affecting companies that have heavily invested in cryptocurrencies. Business intelligence company MicroStrategy, which recently bought large amounts of bitcoin, saw its shares drop by 7 percent. Meanwhile, companies such as Tesla, Coinbase and Square saw their share drop by 1.5 to 3.5 percent.
Chinese cryptocurrency miners moving to the West
China's regulatory stance stands in stark contrast to that of the West, where crypto trading is big business. Here, large banks such as JPMorgan Chase, Goldman Sachs and Morgan Stanley are all beginning to dip their topes into the industry and offer products for wealthy clients that want access to the volatile digital coins.
Because of this, many Chinese miners are now leaving the country and making a beeline for the U.S.
and Canada, with an increasing number of them setting up in places like Texas, South Dakota.
According to Yemu Xu, co-founder of cryptocurrency banking service provider Bella Protocol, Chinese miners who've seen the writing on the wall have been trying for years to migrate to other countries to cut costs. But recent moves such as China's crackdown and Iran's banning of mining have made them more interested in countries with "stable political regimes, mature regulation and better policy support."
"As a result, mining in countries like the U.S. and Canada [has] been picking up," he stated.
This has led to mixed reactions from states. Some are worried about the industry's energy demand and carbon footprint. In New York, the state legislature is considering a bill that would block new bitcoin mining in carbon-producing power plants following the conversion of one such plant into a bitcoin mine.
Other states are more welcoming. In March, Kentucky passed a law offering tax breaks to miners that invest $1 million in setting up their operations in the state.
Either way, the U.S. cryptocurrency industry's growth is expected to continue as more miners and more investment funds are drawn in.
"In China, miners might not have somewhere to go anymore and they’re thinking, how can I move some of my portfolio someplace else?” said Mike Colyer, CEO of Foundry, a New York-based company that helps miners in setting up their operations. “But it’s not just the Chinese. Right now, everyone is scrambling to get machines plugged in.”
for more on China's regulatory moves against cryptocurrencies and what it means for the industry.