Price drops to 3-month low as finance industry warned not to offer digital token services

The values of the biggest cryptocurrencies tumbled on Wednesday as fears that Chinese regulators would intensify a crackdown on financial institutions using digital tokens alarmed the market.

Bitcoin tumbled 14 per cent to its lowest level since early February and ethereum tumbled by a quarter after financial institutions were warned about accepting cryptocurrencies as payment or offering related services and products.

Virtual currency “is not a real currency” and “should not and cannot be used as currency in the market”, said a joint statement issued late on Tuesday on the People’s Bank of China’s WeChat account, banking and internet industry associations. It referred to a recent surge in prices as “speculation”.

Its stance added to the bearish sentiment that has overtaken the industry in the last month amid concerns about a regulatory crackdown and its impact on the environment.

US securities reliant on cryptocurrency trading and prices were also down in European trading. Coinbase, the exchange, was down 7.8 per cent and Microstrategy, the software company turned bitcoin investor, was down 5.9 per cent in Germany.

The development reflected China’s campaign to limit institutional activity in cryptocurrencies as it prepares to launch its own digital currency. Other markets such as the US have remained comparatively open to institutional involvement.

“Part of it is they have their own digital renminbi, part is the lack of control in terms of cash outflows and part of it is trying to make sure people don’t get scammed,” said Paul Haswell, a partner at law firm Pinsent Masons in Hong Kong, of China’s crackdown. 

China’s pressure on cryptocurrencies gained momentum in 2017 when it closed the country’s bitcoin exchanges, which had previously accounted for the majority of global trading.

The government’s plans for a digital renminbi, which would provide the central bank with a record of all currency transactions in real time, could provide a rival cashless payment mechanism to compete with vast online fintech platforms from Ant Group and Tencent.