Financial institutions and payment platforms in China banned from cryptocurrency-related business amid wild price swings
Published: May 19, 2021 12:45 AM
Representation of the Bitcoin cryptocurrency Illustration: VCG

Representation of the Bitcoin cryptocurrency Illustration: VCG

Financial institutions and payment platforms are not allowed to handle businesses related to cryptocurrencies, three Chinese industry associations announced on Tuesday while sending a warning to investors about the risks associated with speculative bets on these types of assets which cannot be used as currency.

Cryptocurrency prices have recently gone on a wild roller roster ride, with trade and speculative investments seeing a rebound severely undermining security in the market and disrupting economic and financial activities, the National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China said in a joint statement about the prevention of risks stemming from cryptocurrency speculation.

For instance, take Bitcoin and Dogecoin which have been championed by Tesla's CEO, Elon Musk. Their prices have registered wild swings after Musk's tweet last week announcing that Tesla will not accept payments for vehicle purchases using Bitcoin. After the price of the cryptocurrency crashed, Musk clarified in a tweet on Monday that Tesla has not sold any Bitcoin, pushing up the price of the cryptocurrency above $45,000.

However, the price of Bitcoin swiftly fell after the joint announcement was made public. As of Tuesday the price of Bitcoin had dropped below $44,000.

In an article posted shortly after the Tuesday statement the China Business Network said that the cryptocurrency sector has inherent risks and over-the-counter trading should be eliminated.

A cryptocurrency is a specific virtual product that is not issued by monetary authorities and does not have the attributes of fiat money as legal tender and, therefore, it is not real currency, the associations stressed that cryptocurrencies should not and cannot circulate in the market. 

The conversion between fiat money and cryptocurrencies, and between different kinds of cryptocurrencies, the issuing tokens for fundraising and cryptocurrency derivatives trading, among other trade activities, violate relevant laws and regulations and are related to crimes such as illegal financing and issuing of unlawful securities, read the statement. 

The members of the associations, including financial institutions and payment platforms, are prohibited to provide services ranging from cryptocurrency-based price-setting for products and services to underwriting insurance services in cryptocurrency.

Additionally, internet platform companies are banned from providing marketing and publicity, among other services, to cryptocurrency related products. 

Consumers were also cautioned against speculative bets on cryptocurrencies which the associations reckon to have no real value and whose prices are extremely likely to be manipulated.

Cryptocurrency trade contracts are not protected by law and the losses resulting from investing in cryptocurrency will have to be borne by investors themselves, added the statement.