China bans crypto exchanges and initial coin offerings, cites market volatility

China on May 18 announced that country’s financial institutions and payment companies from providing any services related to cryptocurrency transactions and has even warned the investors against speculative crypto trading. The latest crackdown by Chinese officials, according to Forbes report, is in light of the market’s recent volatility. It also marks another blow to the nascent market reeling from one of its biggest sell-offs ever after booming institutional adoption helped to reach highs during the COVID-19 pandemic. Under the ban, Chinese financial institutions are not allowed from offering clients any service involving cryptocurrencies.

China’s three industry bodies said in a joint statement on Tuesday, “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.”

 "Judging from the current judicial practice in my country, virtual currency transaction contracts are not protected by law,” it added. 

Even though China has banned cryptocurrencies from transactions and initial coin offering, the authorities have not barred individuals from holding cryptocurrencies. The financial institutions in the country should not provide either in saying or pledging services of cryptocurrency. They are not allowed to issue any product related to cryptocurrency. 

The joint statement also highlighted the risks of digital currency trading and said that cryptocurrencies “are not supported by real value” adding that their prices are easily fabricated and the trading laws are also not protected by Chinese law. The three industry bodies who issued the statement include the National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China.

Value of cryptocurrency dropped by $50 billion

Immediately after China’s announcement, the value of global cryptocurrencies dropped about $50 billion or 2.5% pushing the week’s staggering losses to approximately $500 billion from a Wednesday high above $2.5 trillion, as per reports. In March, Morgan Stanley became the first prominent bank in the United States to give wealthy clients access to virtual currency investments and was followed by Goldman Sachs that too, with its own crypto offerings in April.

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