In late September, China declared that all transactions related to cryptocurrency investments were now illegal.
This includes trading cryptocurrencies as well as issuing tokens or derivatives. The ban also applies to offshore cryptocurrency exchanges, which had been serving customers in response to a ban on domestic exchanges. These are now prohibited from serving anyone in mainland China. Mining cryptocurrency was also forbidden throughout the entire nation.
According to the New York Times, China’s Central Bank referred to both Bitcoin and Ether as being issued by “non-monetary authorities,” and 11 Chinese government entities released a joint statement indicating they’d be working together to “punish ‘illegal’ crypto mining activities” with the goal of preventing “hidden risks caused by the blind and disorderly development” of the crypto industry.
In response to the Cryptocurrency crackdown in China, the price of Bitcoin — the largest cryptocurrency — fell around 7% while other cryptocurrencies also saw falling prices. A subsequent rally, however, showed that Bitcoin and Ether both recovered quickly, while only coins that rely heavily on China remain affected.
The big question for investors, though, is whether China’s actions will reduce demand over the long term. In other words, should investors be more cautious about buying crypto because China has closed off access to one of the world’s largest customer bases?