Bitcoin price drops after People’s Bank of China declares all crypto illegal

Cryptocurrencies sunk today after the People’s Bank of China declared the market illegal.

China’s central bank said all forms of cryptocurrency transactions were illegal and should be banned in a Q&A posted on its website, Bloomberg reported. Offshore providers of crypto services to Chinese citizens are also in violation of the law, PBoC said.

The language signalled a stepping up of China’s crackdown on cryptocurrencies and sent prices sinking across the market. Bitcoin, the world’s biggest crypto token, fell as much as 5% before parring back losses to trade at $42,507, down 2.6% on the day.

Ethereum, the second biggest token, dropped 6.3% to $2,888. Cardano was 2.4% lower at $2.15, Solana sunk 6.9% to $134, and Litecoin lost 5.9% to $149. The broad market was down around 4%, according to data from CoinMarketCap.com.

Stocks with significant exposure to cryptocurrency suffered. Coinbase, the US cryptocurrency exchange, sunk 3.6% in the pre-market in New York and crypto miner Argo Blockchain sunk 10% in London.

James Butterfill, investment strategist at Coinshares, said the price moves were relatively modest compared to similar instances in the past.

“The market is getting more and more used to this rhetoric from China,” he told the Standard.

China began a crackdown on the industry in 2018. Chinese customers have shrunk from 16% of the global bitcoin market to just 4% since 2018, Butterfill said. That figure is now likely to shrink further.

“We’ve seen this before from China where news of bans have been reported over the years, but it has not prevented adoption of Bitcoin and digital assets from continuing their upward trend,” said Freddie Williams, a sales trader at GlobalBlock.

Beijing has long disapproved of cryptocurrencies. It sees crypto as a drain on energy resources and a potential magnet for money laundering and other illicit activity.

Officials have significantly stepped up action over the last year. In June, key Chinese provinces banned cryptocurrency mining. Mining is the complex computing work that underpins the networks of bitcoin and other cryptocurrencies. China was the global hub for this energy-intensive activity, accounting for 46% of the “hash rate” — industry speak for computing power — as of April this year, according to the University of Cambridge.

The crackdown has coincided with bitcoin and other cryptocurrencies reaching record highs earlier this year. Experts say the market has become too big to ignore, drawing the attention of regulators worldwide.

“Bitcoin is a not a sideshow anymore, it’s becoming mainstream,” said Butterfill.

In the UK, the Financial Conduct Authority played a leading role in the ongoing global crackdown on exchange operator Binance and has called for new powers to tackle the market.