Cryptocurrency markets crashed on Wednesday night, with Bitcoin hitting $30,000 its lowest price since January. The abrupt sell-off came amid a plunging market and was widely attributed to a “ban” on crypto in China. As of writing, Bitcoin prices have recovered from the Wednesday drop, but are still far off their April peak. 

So, did China crash Bitcoin? 

The news that came out of China was very minor: Chinese authorities didn’t instate any new restrictions on cryptocurrencies this week. On Tuesday, three Chinese finance industry associations reiterated a 2017 ban on providing crypto related services. The effects on China’s crypto industry will likely be minor.

But the insignificance of the news didn’t determine the perception and consequent actions of already-skittish investors. It appears likely this minor news, in translation, really did set off a market crash.

Timing lines up

The timing of the news breaking and the sell-off suggests that international traders were responding to news from China. 

The statement was posted on the evening of May 18, while Bitcoin was trading at around $45,000, after falling 30% in the previous 30 days. 

Stories on a crypto “ban” in China made the rounds in international media on the afternoon of May 19, meanwhile the price of Bitcoin started to drop faster, losing $2,000 in a couple of hours. 

Google searches for the keywords “China,”  “crypto,” “bitcoin,” and “ban” started increasing around 10:00 p.m. China Standard Time on May 18. Around 9:00 p.m. May 19, searches spiked, at almost the same time that Bitcoin spiked downward to $30,000 just after 9:00 p.m. the next night.

(Image credit: TechNode/Eliza Gkritsi, Chris Udemans)

But the Chinese internet was not very interested in the associations’ statement. 

Chinese state-owned TV channel CCTV reported on the statement a little after 10.00 a.m. on March 19. The news then circulated in Chinese social media. On China’s Twitter-like platform Weibo, related hashtags started picking up steam in the afternoon. As of the time of writing, they have been viewed at least 2.5 million times. That makes the news a mid-sized Weibo trend, garnering similar views as news on US artist Beeple selling a non-fungible token (NFTs) for $69 million back in March. 

(Image credit: TechNode/Eliza Gkritsi, Chris Udemans)

Only when Bitcoin entered freefall on the evening of March 19 did Weibo blow up. Related hashtags have been viewed at least 800 million times since Wednesday night. The hashtag “Bitcoin collapse” was Weibo’s number three trending topic last night. 

What did China do? 

The government didn’t do anything, but some industry associations reminded finance and payments providers that they are not allowed to offer crypto services.

Some in China’s crypto community have pointed fingers at Reuters for distorting the news.

The China Internet Finance Association, the China Banking Association, and the China Payment and Settlement Association said that financial and payments providers are prohibited from conducting business related to virtual currencies, reiterating a 2017 regulation on cryptocurrency activities. Their statement was posted on the People’s Bank of China official WeChat account. 

The list of prohibitions for finance and payments providers is longer and more comprehensive, compared to the 2017 rules, but they broadly refer to the same types of activities. The associations’ words are not legally binding, unlike the 2017 regulations. 

The 2017 rules essentially banned IPO-like initial coin offerings (ICOs) and exchanges. The rules prohibited exchange platforms from converting fiat currencies like the Renminbi to virtual currencies like Bitcoin, companies from issuing crypto tokens in initial coin offerings, and financial and non-bank payment institutions from offering crypto-related services: 

Financial institutions and non-bank payment institutions shall not conduct business related to token issuance financing transactions. Financial institutions and non-bank payment institutions shall not directly or indirectly provide account opening, registration, trading, clearing, settlement and other products or services for token issuance financing and “virtual currency,” and shall not underwrite related tokens and “virtual currency.” The insurance business may include tokens and “virtual currency” into the scope of insurance liability. Financial institutions and non-bank payment institutions shall promptly report to the relevant authorities if they find clues about the illegality of token issuance financing transactions.

September 2017 statement from People’s Bank of China, Central Cyberspace Administration, Ministry of Industry and Information Technology, State Administration for Industry and Commerce, China Banking Regulatory Commission, China Securities Regulatory Commission, and China Insurance Regulatory Commission

In the four years since the 2017 rules, crypto exchanges have continued to offer their services and run massive offices in China, blockchain companies have launched ICOs, and most of the world’s crypto mining has been in China. 

Last year, however, authorities cracked down on crypto exchanges and particularly over-the-counter traders

The three industry bodies’ Tuesday announcement said essentially the same thing;: that financial and payment companies should not provide crypto services:

Financial institutions, payment institutions and other members must effectively strengthen their social responsibilities. They must not use virtual currency to price products and services, and must not underwrite insurance businesses related to virtual currencies or include virtual currencies in the scope of insurance liability. They must not directly or indirectly provide customers with other services. Services related to virtual currency, including but not limited to: providing customers with virtual currency registration, trading, clearing, settlement and other services; accepting virtual currency or using virtual currency as a payment and settlement tool; developing virtual currency exchange services with RMB and foreign currencies; develop virtual currency storage, custody, mortgage and other businesses; issue financial products related to virtual currency; use virtual currency as investment targets for trusts, funds, etc. Financial institutions, payment institutions and other member units should effectively strengthen the monitoring of virtual currency transaction funds, rely on industry self-discipline mechanisms, strengthen risk information sharing, and improve the level of industry risk joint prevention and control; if clues of violations of laws and regulations are found, they must promptly adopt restrictions, suspensions or procedures in accordance with procedures. Terminate relevant transactions, services, and other measures, and report to relevant departments; at the same time, actively use multi-channel and diversified access methods to strengthen customer publicity and warning education, and take the initiative to make warnings about risks related to virtual currencies. Internet platform corporate member units shall not provide services such as online business premises, commercial display, marketing and publicity, and paid diversion for virtual currency-related business activities. If clues of related problems are found, they shall promptly report to relevant departments and provide technical support for related investigations and assistance. 

March 18 statement from China Internet Finance Association, China Banking Association, and China Payment and Settlement Association

Carbon complications

An overblown story from China doesn’t explain all of the recent drop in crypto markets. In the last month, Bitcoin has lost 30% of its value, likely because investors are skittish amid looming environmental and regulatory concerns. 

A further plunge crstarted after tech CEO Elon Musk tweeted that Tesla will not accept Bitcoin as payment on March 13, citing environmental concerns. The digital asset has lost 30% of its value in the week since Musks’s statement. 

“This recent crash reflects the misunderstandings [of the effects of] Bitcoin mining on the environment in my opinion, but perhaps also has been driven by the ESG-minded companies that have been influenced by Musk’s latest stance on Bitcoin,” Flex Yang, CEO and co-founder of Babel Finance, a crypto financial services firm, told TechNode. 

The associations’ statement probably won’t bring dramatic change to China’s rules on crypto, but concerns about environmental regulation are mounting for crypto miners in the country. 

As the central government pursues carbon neutrality, local governments are increasingly hostile to crypto mining activities. Inner Mongolia has already proposed a ban on the industry, and crypto miners in Sichuan, which is usually more friendly, are expecting increased pressure in the coming months. 

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Eliza was TechNode's blockchain and fintech reporter until July 2021, when she moved to CoinDesk to cover crypto in Asia. Get in touch with her via email or Twitter.