China’s central bank has declared that all cryptocurrency payments are illegal, causing the global market to crash by 6.7 per cent at 5pm UK time.
A Q&A posted on the People’s Bank of China’s website outlining government guidelines for cracking down on cryptocurrency trading has said all crypto payments are against the law.
It comes after the Asian superpower banned crypto mining in May, causing a major market correction and shaving 50 per cent off Bitcoin’s price.
A statement posted on the Central Bank’s website today said that all “virtual currency-related business activities are illegal financial activities.”
The bank said that as cryptocurrencies including Bitcoin and Ether are issued by non-monetary authorities “they are not legal and should not and cannot be used as currency in the market”.
“Virtual currency does not have the same legal status as legal currency,” the statement continued. The Bank stressed that crypto exchanges violate the country’s laws even if foreign exchanges merely offer services to Chinese customers.
China has been ramping up its crypto currency regulation in recent years.
In 2017, China shut down local exchanges, suffocating a nascent market that accounted for 90 per cent of global Bitcoin trading.
Recently, the government cited its environmental commitments as the rationale for banning mining. Government backed industry bodies have also said that crypto harms the national economy with wild swings in currency prices disrupting the economic order and violating people’s asset safety.
Financial lawyer Sebastien Ferriere, a Senior Associate at Browne Jacobson, said that technically China’s latest move will not impact the legality, under UK law of receiving or making crypto payments.
“However, it will certainly raise questions as to how firms or individuals manage their potential exposure to criminal sanctions in China and under Chinese law, and whether they can or wish to take steps to detect when payments are made from China,” he said.
Bitcoin’s price has dropped by as much as nine per cent in the wake of the news with its price tumbling from above $45,000 to lows of $40,936.