Chinese officials have strengthened regulations prohibiting financial institutions and payment firms from offering services connected to cryptocurrencies, signaling a new round of anti-digital currency action. The new laws substantially increased the scope of illegal services compared to a prior prohibition imposed in 2017 and determined that virtual currencies are not underpinned by any actual value.
Three financial sector groups told their members on Tuesday not to offer any crypto-related services, including account openings, registration, trading, clearing, settlement, and insurance, reaffirming a 2017 prohibition. However, the new restriction, announced by the People’s Bank of China, extends to services that were not previously prohibited.
It said, for example, that commercial banks must not accept virtual currencies or utilize them as a transaction or settlement method. Institutions are also unable to conduct cryptocurrency-to-yuan or foreign-currency exchange services. Institutions were also barred from offering bitcoin saving, trust, or pledging services, as well as producing crypto-related financial products. Furthermore, trust and fund products must not employ virtual currencies as investment goals.
Banks and payment providers were also advised to increase their surveillance of cryptocurrency-related money movements and collaborate more closely in detecting such threats.
Crypto-rules in China
In China, cryptocurrencies are not recognized as legal money, and the financial system does not accept or offer services related to them. The government designated bitcoin as a virtual commodity in 2013 and stated that individuals were open to selling it online. However, financial regulators, notably the PBOC, prohibited banks, and payment businesses from offering bitcoin-related services later that year. China prohibited Initial Coin Offerings (ICOs) in September 2017 in order to safeguard investors and reduce financial risks.
Cryptocurrency trading platforms were also prohibited from changing legal money into cryptocurrencies and vice versa under the ICO guidelines. Most such trading sites shut down as a result of the limitations, with many relocating overseas. Financial businesses and payment organizations were also prohibited from providing services for ICOs and cryptocurrencies, such as account openings, registrations, trading, settlement, or liquidation, under the ICO laws.
In China, the worldwide bitcoin bull run has reignited cryptocurrency trading. The industry guideline issued on Tuesday warned that speculative bitcoin trading has resurfaced, endangering “people’s property and undermining the regular economic and financial order.”
Many Chinese investors were now trading on Huobi and OKEx platforms, which were controlled by Chinese exchanges that had migrated offshore. Meanwhile, China’s cryptocurrency over-the-counter market has reopened, and inactive trading chat rooms on social media have reopened.
China-focused exchanges, like Binance and MXC, allow Chinese citizens to create accounts online in a matter of minutes. They also assist convert the Chinese yuan into cryptocurrencies by facilitating peer-to-peer transactions in OTC marketplaces. Banks or online payment methods like Alipay or WeChat Pay are used for such purchases.
Retail investors may also purchase “computer power” from cryptocurrency miners, who create a variety of investment schemes that promise high returns quickly. Meanwhile, the PBOC has launched its own digital currency in response to the possible danger of cryptocurrencies to China’s fiat currency, the yuan.
Crackdown and its impact
However, detecting money transactions connected to cryptocurrency is a difficulty for banks and payment providers. New laws were meant to totally exclude crypto-related transactions from China’s financial institutions, and the government is expected to implement new crypto-related legislation.
In reaction to China’s renewed restriction, the Hong Kong Bitcoin Association tweeted, “For those new to bitcoin, it is normal for the People’s Bank of China to prohibit bitcoin at least once in a bull cycle.”
The situation in the US
For more than a decade, the crypto sector has been playing a cat-and-mouse game with US regulators. After a turbulent year in which the SEC, FinCEN, CFTC, and Department of Justice all went after crypto businesses, 2020 has been relatively quiet. With the Covid-19 epidemic occupying authorities’ attention, crypto regulation headlines and actions have been mostly positive, due to improved collaboration between the sector and regulators like the Financial Action Task Force.
However, as prices rise in the fourth quarter of 2020, dark clouds are forming over Bitcoin and its peers in the United States due to its implementation in activities that are not fully legalized in every state, for example, the online gambling using Bitcoin in US has been dramatically increased over the last year. The US Department of Justice and the Commodity and Futures Trading Commission’s assault on major exchange BitMEX on October 1st has ushered in a new wave of regulatory measures, demonstrating that crypto firms are almost always on the radar of US federal authorities. Private wallets, stablecoins, and decentralized finance protocols, in particular, appear to be under attack. This has prompted prominent crypto business leaders in the United States to publicly criticize authorities for failing to develop a uniform and clear regulatory framework.
BitMEX has a new CEO – Following the recent recruitment of middleweight chief risk manager Malcolm Wright to deal with the immediate anti-money laundering allegations and Bank Secrecy Act violations, BitMEX holding company 100x has ultimately hired a new CEO to cope with the immediate anti-money laundering allegations and Bank Secrecy Act violations and arise many further legislative measures.
The embattled OCC chairman pledges ‘clarity’ on crypto – According to the country’s top federal financial regulator, the United States is considering enacting new cryptocurrency laws in the coming weeks, which has been received with skepticism by others. The upcoming crypto rules, according to Comptroller of the Currency Brian P. Brooks, are intended to provide clarification rather than outright outlaw bitcoin.
The proposed STABLE Act has the potential to destabilize cryptocurrency – The Stablecoin Tethering and Bank Licensing Enforcement Act, a contentious new measure to regulate stablecoins, was recently introduced by US legislators. If passed by the US Congress, this bill would make it unlawful for an individual or company to issue a stablecoin without first receiving clearance from the Federal Reserve, the Federal Deposit Insurance Corporation, and authorized financial bodies six months prior to the issuance. The STABLE bill aims to safeguard customers from the dangers associated with emerging digital payment systems such as Facebook’s Libra currency, which has now been renamed as Diem and is set to arrive in 2021.
The CEO of Coinbase responds to speculations of crypto wallet regulation – When Coinbase co-founder and CEO Brian Armstrong discussed speculations on social networks that President Trump and U.S. Secretary of the Treasury Steven Mnuchin, a vocal opponent of cryptocurrencies, were plotting to release proposed law on self-hosted crypto wallets, he tried to pull no hard shots and triggered a reduction in the value of Bitcoin. Armstrong believes that the new rule would compel financial institutions, like his cryptocurrency exchange, to acquire personally identifiable information from users. He went on to say that the regulation, in the long term, jeopardizes America’s standing as a financial center.
Ripple’s CEO backtracks on intentions to relocate to the United States – Brad Garlinghouse, the CEO of Ripple, has backed out of his intention to move the financial technology business from San Francisco to London. Garlinghouse announced in October that it was exploring the transfer because of regulatory uncertainties in the United States. According to Garlinghouse, there is no set timeframe for the move. He believes that the upcoming Biden government would help Ripple, which is tied to XRP, the world’s third-largest cryptocurrency by market value.
Finally, the ongoing regulatory standoff in the United States has produced no winners and is only harming the nascent crypto industry and the country’s reputation as a financial center. The line between promoting adoption and suffocating innovation, two important responsibilities for any financial regulator, is razor-thin.
New planned laws like the STABLE Act and a reported intention to regulate the usage of self-hosted crypto wallets may decimate the country’s creative crypto industry, forcing businesses to relocate to more favorable jurisdictions like Singapore or Switzerland.