BUSINESS China bans financial, payment institutions from crypto business amid price volatility

BUSINESS

China bans financial, payment institutions from crypto business amid price volatility

CGTN

20:13, May 19, 2021

Bitcoin price fell over 13 percent to hit a 24-hour low of $38,585.86 at around 12:54 a.m. ET, May 19, 2021, marking the first time for the digital token to fall below $40,000 in 14 weeks. (Photo: VCG)

Rounds of cryptocurrency boom-and-bust recently have raised cautions from China's regulatory authorities, who have banned financial and payment institutions from providing services related to the virtual currency transactions and warned investors against the speculative trading.

"Recently, cryptocurrency prices have skyrocketed and plummeted, and speculative trading of cryptocurrency has rebounded, seriously infringing on the safety of people's property and disrupting the normal economic and financial order," three Chinese state-backed associations said in a statement released Tuesday.

The three associations are the National Internet Finance Association of China – an association of Chinese internet firms providing financial services, the China Banking Association on behalf of the country's banks, and the Payment and Clearing Association of China.

According to the statement, financial institution members, payment institutions, and other agencies shall not use virtual currency to price products or services. Also, internet platform enterprises shall not provide services for virtual currency-related business activities.

It is also not allowed to underwrite insurance businesses related to virtual currencies or bring virtual currencies into insurance liability coverage.

Prices of bitcoin and other cryptocurrencies have skyrocketed since last year, and the huge wealth effect has continued to attract capital.

However, bitcoin fell over 13 percent to hit a 24-hour low of $38,585.86 at around 12:54 a.m. ET, and it was the first time for the digital token to fall below $40,000 in 14 weeks, CoinDesk data showed. It was also off about 39 percent from its record high of $64,829.14 in mid-April.

The price volatility, which has also been exacerbated by comments from Tesla CEO Elon Musk, has caused great market risks.

Musk is an outspoken supporter of the cryptocurrency but reversed course in recent weeks. The CEO bought $1.5 billion worth of bitcoin in February, before citing energy consumption in bitcoin mining as a concern to stop accepting payment for Tesla cars in cryptocurrency last week, while not selling the bitcoin holdings.

There are many accounts on Weibo and WeChat publicizing virtual currencies, and domestic investors can still make transactions through apps of some overseas exchanges, as their download addresses have not been blocked.

Virtual currencies "are not supported by real value," their prices can be easily manipulated, and trading contracts are not protected by Chinese law, the Chinese associations reminded investors in the statement on the risks of virtual currencies.

There are multiple risks in related speculative trading activities that lurk in the form of false assets and business failures, the statement said.

Virtual currencies, a type of virtual goods, are not issued by monetary authorities. They have no fiscal attributes such as legal compensation and should not circulate as real currencies.

The moves were not China's first moves against cryptocurrency. In recent years, the People's Bank of China and other departments have issued multiple documents demanding forestalling risks of speculation in virtual currency transactions.

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