Bitcoin and other cryptocurrencies were crushed this week after Chinese regulators banned financial institutions from handling cryptocurrency transactions and warned investors about the risks of owning cryptocurrency assets.
This isn't the first time Chinese regulators have crushed cryptocurrencies. A couple of years ago, cryptocurrencies went on a tailspin after Beijing banned initial coin offerings and shut down cryptocurrency exchanges.
But this time around, Chinese regulators went further than that. They, in essence, made cryptocurrencies useless in China.
"A cryptocurrency is a specific virtual product that is not issued by monetary authorities and does not have the attributes of fiat money as legal tender and, therefore, it is not real currency," a Global Times editorial read.
There's an official and an unofficial reason for making cryptocurrencies useless. The official reason is the wild price gyrations of cryptocurrencies, which undermines the security of markets and financial activities.
That's according to a joint statement of the National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China, who also said, "Cryptocurrency prices have recently gone on a wild roller roster ride, with trade and speculative investments seeing a rebound severely undermining security in the market and disrupting economic and financial activities."
How so? Price gyrations are an integral part of every market. Crude oil had an enormous gyration during the pandemic, with futures prices turning negative for May 2020. Yet, no government came out seeking to ban futures oil contracts.
Apparently, something else is at play. There is another reason, which is Chinese authorities want to crush cryptocurrencies because they don't want any competing currency to their national currency. And something more: they want to have firm control of the country's banking system and credit allocation.
While it is still unclear whether the Chinese government will achieve its real objectives, one thing is clear: cryptocurrencies are on the top of regulators' radar. They have the power to make them useless as currencies.
Disclosure: I don't own any cryptocurrencies.
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