Bitcoin, Ethereum and other cryptocurrencies dipped in value on Friday after China declared all transactions involving these digital currencies "illegal."
China's central bank, the People's Bank of China, issued a statement on Friday saying that use of these virtual currencies is disrupting economic order and linked to money laundering, fraud and other illicit activities. While Chinese financial institutions already were banned from doing business with cryptocurrencies, the new statement made clear that cryptocurrencies do not have the same status as legal tender and cannot be used as currency in the marketplace.
Bitcoin dropped some 8% on the news, but recouped some initial losses and was down by some 5% late Friday morning. Ethereum initially shed more than 10%, but was down by some 7% as of 11:30 am ET, according to Coin Desk data.
The notoriously volatile digital currencies are down about 30% from all-time highs in the spring, but Bitcoin still is up some 40% since the start of the year and Ethereum has gained a whopping 290% in 2021.
Friday's notice from Beijing also made clear that it's illegal for overseas virtual currency exchanges to provide services to Chinese residents through the internet.
The announcement comes as China experiments on a small scale with its own digital currency issued by its central bank, the first to be created by a major economy. The digital yuan is expected to be rolled out at larger scale imminently, and while it has many similarities to current cryptos the major difference is that it can be more easily traced and controlled by the government.
U.S. financial markets held steady on the news, with the Dow Jones Industrial Average and the S&P 500 both opening relatively flat on Friday. Analysts and investors around the globe have been keeping a close eye on news out of China, however, amid silence on the Evergrande saga. Debt issues plaguing Evergrande, one of China's largest real estate developers, sent global markets tumbling earlier in the week as many predicted a default with possible spillover effects to the larger economy.
China declares cryptocurrency transactions illegal as crackdown continues