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In its latest effort to crack down on crypto trading activities, China’s central bank has required domestic banks to cut off the funding channels of crypto over-the-counter (OTC) merchants.

The People’s Bank of China issued a statement on Monday, stating that it has recently summoned a meeting with several domestic banks and mobile payment service providers. That included the Industrial and Commercial Bank of China, the Agricultural Bank of China, the Construction Bank of China, Postal Savings Bank of China, the Industrial Bank, as well as mobile payments app AliPay.

The PBoC said the speculative activities around crypto trading has severely disrupted the financial order of China and has created the risk of illegal capital outflow across the border and money laundering. It reiterated its 2017 stance that no financial institutions should provide banking and settlement services for crypto-related transactions. 

It added that the banks should make sure to check if any OTC traders are using their services to provide on- and off-ramps for Chinese traders in a peer-to-peer fashion. “The institutions should immediately cut off their payment and funding channels,” the central bank said. 

The Agricultural Bank of China had put out an announcement earlier Monday that reiterated the same stance it has imposed since 2017. The only difference was that it stated the bank would terminate customer accounts if any users were found dealing with crypto transactions and would report the issue to the relevant authorities. But the bank took down the announcement shortly afterwards.

Bitcoin’s price dropped below $34,000 shortly after the ABC released the now-deleted announcement. Following the PBoC’s official statement, bitcoin’s price further dropped towards $32,000 but has bounced back to above $33,000 at time of writing.

Ever since the PBoC issued a ban on initial coin offerings (ICOs) in 2017 and cut off fiat on-ramp channels for crypto exchanges, a lot of the bigger exchanges largely switched to crypto-to-crypto-only order books. 

Chinese crypto investors have hence been relying on OTC merchants to get between fiat and crypto in a peer-to-peer fashion. For instance, User A would send crypto assets to User B after User B wires an equivalent amount of the Chinese yuan through mobile payment apps or bank transfer. 

It appears the latest measure would likely target such funding methods to prevent the fiat currency from flowing into the crypto markets.

China’s wider crackdown on crypto

The PBoC’s new measure comes after the State Council’s meeting last month that mentioned escalating the crackdown on bitcoin trading and mining activities.

Following the central government’s high-level comment, provincial and municipal government agencies in Inner Mongolia, Xinjiang, Qinghai and Sichuan have all issued orders to their local state-owned power grids to cut off electricity supply to bitcoin mining facilities.

Earlier this month, nearly two gigawatt of energy capacity that had been powering up bitcoin miners in Xinjiang was shut down. 

Sichuan made a similar move last week by shutting down 26 bitcoin mining farms as an initial target and ordered local power plants to expand their inspections.

Bitcoin’s total network hash rate has declined by more than 30% since the shutdown orders in the two major mining hubs, forcing pressure on Chinese miners to either be done with mining or migrate overseas.

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