China Outlaws All Cryptocurrency Transactions; Bitcoin Tumbles

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The bitcoin logo appears on a crypto currency ATM.
Beijing officials worry that digital currencies disrupt the financial system and can be used in financial crimes.

 China’s central bank on Friday declared all transactions involving Bitcoin and other virtual currencies illegal, stepping up a campaign to block use of unofficial digital money.

Friday’s notice complained Bitcoin, Ethereum and other digital currencies disrupt the financial system and are used in money-laundering and other crimes.

The price of Bitcoin fell more than 9%, to $41,085, in the hours after the announcement, as did most other crypto tokens. Ethereum skidded almost 10%, falling from $3,100 to around $2,800.

Promoters of cryptocurrencies say they allow anonymity and flexibility, but Chinese regulators worry they might weaken the ruling Communist Party’s control over the financial system and say they might help to conceal criminal activity.

The People’s Bank of China is developing an electronic version of the country’s yuan for cashless transactions that can be tracked and controlled by Beijing.

Regulators in other countries have increasingly warned that cryptocurrencies need greater oversight. In the U.S., Gary Gensler, the chairman of the Securities and Exchange Commission, has said that investors need more protection in the cryptocurrency market, which he called “rife with fraud, scams and abuse” and compared to the "Wild West.”

The SEC has won dozens of cases against crypto fraudsters, but Gensler says the agency needs Congress to give it more authority and funding to adequately regulate the market.

Regulators in China have also been trying to rein in cryptocurrency mining, an energy-intensive process whereby specialized computers generate digital currencies. As a result, miners have been moving operations out of China.

Two years ago, China alone accounted for around three-quarters of all the electricity used for crypto mining, by far the most in the world, according to the Cambridge Bitcoin Electricity Consumption index. By April of this year, before the latest crackdown, China’s share had fallen back to 46%. That still towers over the No. 2 country, the United States, at less than 17%.

Additional reporting by the Associated Press.