In a statement, the People's Bank of China announced a blanket ban on all cryptocurrency-related exchanges – such as offering trading, order matching, token issuance and derivatives. This ban also prevents any overseas-based cryptocurrency exchanges from providing services in mainland China.
"Overseas virtual currency exchanges that use the internet to offer services to domestic residents is also considered illegal financial activity," read the statement. Any resident of mainland China who continues working for foreign cryptocurrency exchanges will be placed under investigation.
The People's Bank also announced that it is taking steps to improve its enforcement of the communist nation's cryptocurrency ban.
"Financial institutions and non-bank payment institutions cannot offer services to activities and operations related to virtual currencies," wrote the bank. This is seen as a warning for the country's finance industry that they will be monitored closely to ensure compliance.
"In the history of crypto market regulation in China, this is the most direct, most comprehensive regulatory framework involving the largest number of ministries," said Winston Ma, an adjunct professor for New York University School of Law.
Ma added that this blanket ban on cryptocurrencies and cryptocurrency exchanges is the manifestation of the communist government's crackdown on cryptocurrency miners back in May.
The Chinese government said it was worried that "mining," or the energy-intensive process through which new blockchain-based cryptocurrencies are minted, is hurting the country's environmental goals. (Related: BITCOIN GREENWASHING: No, Bitcoin mining isn't mostly powered by clean, renewable energy, but the cult-like self-delusion of Bitcoin apologists is itself a fascinating science experiment.)
Government agencies have also raised concerns in the past that cryptocurrency speculation could disrupt the carefully cultivated financial and economic order in China.
The National Development and Reform Commission (NDRC), China's main executive agency for economic management, announced that it was launching a nationwide cleanup of cryptocurrency mining.
In a memo to local governments, the NDRC said it was an imperative for them to comply with the national government and to wipe out all cryptocurrency mining operations. Doing so would supposedly promote high-quality growth in the Chinese economy.
Cryptocurrencies rally despite China ban
In response to the ban, bitcoin, the world's largest cryptocurrency and one of several virtual currencies specifically mentioned by the People's Bank, initially dropped in value, trading at a low of $42,146. Ethereum, the second-largest cryptocurrency, also plunged in value to $2,844.
Many smaller coins, which usually rise and fall with bitcoin, also fell, many by as much as 10 percent.
"There's a degree of panic in the air," said Joseph Edwards, head of research at Enigma Securities, a London-based cryptocurrency broker. "Crypto continues to exist in a gray area of legality across the board in China."
But despite the initial setbacks, these cryptocurrencies quickly rallied. Bitcoin rallied close to $44,000 on Monday, near the level it was before China announced its ban. Ethereum broke above its value last week of $3,100.
Cryptocurrency analysts believe the quick rally was at least partly due to people purchasing cryptocurrencies to support the market and to oppose the Chinese government.
Strategists from Fundstrat, a finance corporation, pointed out that this is not the first time that the Chinese government has attempted to crack down on cryptocurrencies.
"If we broaden our definition of 'ban,' then we can pinpoint seven dates, including today, in which we witnessed some semblance of a crypto crackdown," wrote the company's strategists.
Other users have pointed out that the Chinese government has in the past struggled to prevent its citizens from evading controls against making transactions with cryptocurrencies.
"China's actions haven't held back crypto's rise too much in the past so I wouldn't be surprised to see it bounce back once more," wrote Craig Erlam, an analyst for currency broker OANDA.
"The losers in all of this are plainly the Chinese," wrote Christopher Bendiksen, head of research for CoinShares, a digital asset management corporation. "They will now lose around $6 billion worth of annual mining revenue, all of which will flow to the remaining global mining regions."
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