China Declares Cryptocurrency Transactions Illegal

How does this measure affect El Salvador, a country that has authorized Bitcoin as legal currency?.

Person holding three different cryptocurrencies

There are those who define it as the future, and those who point to it as a dangerous financial bubble. Photo: Pexels

LatinAmerican Post | Joshua Radesca

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Leer en español: China declara ilegales las transacciones con criptomonedas

The measure released by the People's Bank of China negatively impacted the value of major cryptocurrencies such as Bitcoin (BTC) and Ethereumn (ETH). How does this measure affect El Salvador, a country that has authorized Bitcoin as legal currency?

Since their emergence, cryptocurrencies have gradually been gaining popularity and becoming one more element of the current global economy . These have generated interest in various people, institutions and governments, but also suspicion in those who consider cryptocurrencies as volatile and detrimental to the stability of the world economy. There are those who define it as the future, and those who point to it as a dangerous financial bubble.

In this disparity of opinions, we can distinguish, on the one hand, governments like El Salvador, which recently became the first country to establish Bitcoin as one of its legal tender currencies alongside the dollar. At the other extreme is the Chinese government, which sees everything related to cryptocurrencies as a threat to its economic and financial order and the safety of its citizens. Therefore, it has declared transactions with this type of assets illegal within its territory.

This was announced by the People's Bank of China on Friday, September 24, through a statement on its website in which all operations with cryptocurrencies and their mining are established as illegal. Chinese businesses or individuals will not be able to receive or invest in these types of assets. The ban even applies to foreign companies that provide services through the Internet to residents of the Asian country.

According to the People's Bank of China, these measures are supported by the fact that cryptocurrencies are not considered legal tender, since they can be lent to carry out illegal activities, including money laundering, illegal fundraising, electronic fraud and pyramid schemes. They also allege that the cryptocurrency mining process generates enormous energy consumption that translates into a significant negative effect on the environment.

To deal with the now illegal financial activities related to cryptocurrencies, the People's Bank of China and other departments will take measures such as the cutting of payment channels, the elimination of websites and mobile applications that provide information or facilitate the exchange of this type of currency.

This communiqué also warns that those who do not respect this regulation would be investigated and the corresponding criminal sanctions would be applied.

The impact on the cryptocurrency market

The actions taken in the Asian country have been considered a significant blow to the world of cryptocurrencies. China is one of the most important cryptocurrency markets and one of the largest mining centers in the world. The latter is due to the low cost of electricity service in the region. For these reasons, the measures announced by The People's Bank of China did not take long to have an effect on the global value of various cryptocurrencies. Bitcoin (BTC), Ethereumn (ETH) and Cardano (ADA) have been presenting fluctuations in their prices since the announcement of China, reaching a decrease in their values of between 5% and 8%, there have also been slight increases .

All this comes at a time when the price of cryptocurrencies had already been affected by the liquidity crisis of Evergrande, one of the largest real estate companies in China.

You may also be interested in: China Evergrande Crisis: How Does This Affect Latin America?

The measures have also prompted major figures in the crypto world such as exchanges Binance, Huobi and FTX and the Sparkpool mining pool to announce the cessation of their activities in mainland China.

Do China's measures affect El Salvador?

The ban on cryptocurrencies in China has not been favorable for El Salvador. The impact that this legal action has had on the price of Bitcoin complicates the outlook for the government of Nayib Bukele, which has had to face protests and technical problems in the process of adopting the cryptocurrency in his country.

One of the most important criticisms of the measure is the danger represented by relating the economy of El Salvador to a currency as volatile as Bitcoin. The recent loss of value of this cryptocurrency has been taken by some sectors as a clear and prompt demonstration of the risks posed by the action promoted by President Bukele.

However, the Salvadoran government continues to expand its strategies to introduce Bitcoin into the national economy. It was recently announced that mining is being promoted in the region through the use of alternative energy. One of the plans carried out by Bukele is to use geothermal energy from volcanoes.

As can be seen, the regulations implemented in China in relation to cryptocurrencies make it clear that cryptocurrencies continue to be an issue that generates mixed opinions, and that the fate of this type of goods depends on multiple factors, such as their strength, trust and distrust that generate in individuals and the measures that governments around the world establish for or against it. 

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