China sends another warning on cryptocurrency risks amid ‘wild fluctuations’

Three Chinese state-backed financial associations have jointly issued a warning about the risks stemming from volatile cryptocurrencies, in the latest step by Chinese authorities to tamp down on speculative trading and draw a clear distinction with the central banks own digital currency.

The National Internet Finance Association of China, a state-backed association of Chinese internet firms providing financial services, the China Banking Association on behalf of the countrys banks, as well as the Payment and Clearing Association of China, on Tuesday warned their members to stay clear of any financing activities related to popular cryptocurrencies.

They stated that any activity related to the exchange of fiat money for cryptocurrencies, providing intermediary services to facilitate trading, or conducting token-based derivatives trading, could be charged as a criminal offence in China. The warning, which was republished by the People‘s Bank of China (PBOC), the country’s central bank, underlines Beijings caution when it comes to the financial risks and money laundering concerns raised by cryptocurrencies.

Bitcoin and other major cryptocurrencies slumped after PBOC reiterated that digital tokens can‘t be used as a form of payment. The largest token fell below $40,000 for the first time since early February, dropping as much as 10% to $38,973 on Wednesday and continuing a week long slide sparked by Elon Musk’s back-and-forth comments on Tesla Inc.‘s holdings of the coin. Ether, Dogecoin and last week’s sensation, Internet Computer, also retreated. “This is the latest chapter of China tightening the noose around crypto,” said Antoni Trenchev, managing partner and co-founder of Nexo in London, a crypto lender.

Virtual currencies should not and cannot be used in the market because they‘re not real currencies, according to a notice posted on the PBOC’s official WeChat account. Financial and payments institutions are not allowed to price products or services with virtual currency, the notice said.

The statement doesnt have any new regulatory steps, according to Yu Lingqu, a vice director at the China Development Institute think-tank in Shenzhen. The notice was conveyed by the central bank but compiled by industry associations rather than government officials, making it less powerful, according to Liu Yang, a lawyer at Beijing-based law firm DeHeng Law Offices.

“They just want caution,” said Bobby Lee, founder and chief executive officer of crypto storage provider Ballet. “They feel the market is over-hyped, there‘s speculative trading, they’re looking out for the best interests of the people.”