Why has China declared war on bitcoin and digital currencies?

China’s government is starting an all-out war against bitcoin and other digital currencies by banning fundraising through initial coin offerings and shutting down all mainland digital currency exchanges.

Two of the largest cryptocurrency exchanges in China, OKCoin and Huobi, issued statements on Friday night saying they would shutdown all trading between bitcoin and the yuan by October 31. A day earlier, BTC China, a Shanghai-based cryptocurrency exchange, said it would stop trading as of September 30.

The cease of operations of the three biggest cryptocurrency exchanges, along with at least 20 other smaller exchanges in China, shows a centralised effort from Beijing to curb or even eradicate cryptocurrencies on the mainland. The government’s decision pushed bitcoin prices below US$3,000 briefly before they rebounded over 20 per cent.

Beijing’s crackdown on bitcoin, Litecoin, Ethereum and other cryptocurrencies comes just over a week after it banned all forms of initial coin offerings (ICO), defining the activity as unauthorised fundraising – a criminal offence in China.

The popularity of cryptocurrencies and speculation in them has raised eyebrows among conventional bankers and regulators. JPMorgan’s chief executive Jamie Dimon called bitcoin a fraud this week and threatened to fire any employee at his bank found to be trading in the virtual currency. The British financial watchdog has sent a warning reminding the public of the risks of ICOs and the US Securities and Exchange Commission has said it may regulate initial coin offerings.

China’s bitcoin gloom may be Hong Kong’s boon as crypto issuers switch to city’s exchanges

Few, however, have struck as hard as Beijing. A notice issued by China’s seven government agencies, led by the People’s Bank of China, earlier this month was regarded by analysts as a death sentence for ICOs and the centralised trading of cryptocurrencies.