Dominoes Start to Fall Following Beijing’s Crypto Ban

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A Chain Reaction

The September 24 announcement out of the People’s Bank of China, aka “The Notice,” that effectively created a blanket ban on cryptocurrency activities in the Southeast Asian country has set off a chain reaction amongst global digital currency exchanges and service providers.

Made jointly by ten Chinese government bodies, the statement barred all crypto services in the mainland, including trading, order matching, and issuing tokens and derivatives. It also declared digital transactions provided over the internet to be financially criminal.

Reactions on the mainland were swift.

Virtual cryptoCurrency and Crypto Stocks Take a Tumble

The crypto market was the first to be impacted with Bitcoin and Ethereum both slipping 6.5 and 9 percent in the first 24 hours, respectively, as did other digital coins.

Stocks with a strong crypto presence were also negatively impacted. Notably, Huobi Tech, an affiliate of the major crypto exchange Huobi Global, plummeted 22 percent while OKG Technology Holdings Ltd fell 19 percent. In addition, companies that make crypto-mining rigs also took hard hits including Canaan, Inc., which fell 21 percent and Ebang International, which experienced a 7 percent drop in value.

Cryptocurrency Services Come to a Halt

Following the announcement out of Beijing, Huobi Global and another large global exchange, Binance, immediately stopped offering new account registrations to mainland China residents. Huobi said it will retire its existing accounts by year-end. Likewise, TokenPocket, a leading cryptocurrency wallet service provider, ceased providing services to its mainland China customers.

Companies Begin Their Exodus

The late September announcement could not have been a total surprise for crypto financial service providers or investors as the country has taken a tough approach on virtual currencies for some time. The concern from the top has always been that unregulated digital currencies are ripe for illegal activity such as fraud, money laundering, and pyramid schemes.

That hostility, however, has resulted in many firms in recent months relocating to greener pastures, a practice that will only pick up. For example, crypto exchange FTX recently moved its headquarters from Hong Kong to the Bahamas.

Increased Outflows

A natural domino effect of Beijing’s crackdown is an outflow of capital from Chinese exchanges. In the first half of 2021 alone, $28.3 billion left the country via such exchanges. According to blockchain security company PeckShield, this outflow represents an increase of 62 percent over the entire 2020 year.

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