Financial institutions told to crack down on crypto trade

China's central bank said on Monday it had summoned some banks and payment institutions recently, urging them to crack down harder on cryptocurrency trading.

The People's Bank of China's meeting with institutions including Agricultural Bank of China (AgBank) and Alipay came after China's State Council, or Cabinet, last month vowed to crack down on bitcoin trading and mining.

The PBOC urged institutions to launch thorough checks on clients' accounts to identify those involved in cryptocurrency transactions, and promptly cut their payment channels.

"Speculative trading in virtual currencies roils economic and financial order, spawns the risks of criminal activities such as illegal asset transfers and money laundering, and endangers people's wealth," the PBOC said in a statement.

Other participants in the PBOC's meeting included state-owned China Construction Bank, Industrial and Commercial Bank of China and Postal Savings Bank of China.

Bitcoin's bull run globally had revived speculative trading in China, where people buy cryptocurrencies using yuan via bank accounts or payment platforms. Last month, three industry associations issued a ban on crypto-related financial services, but the bodies are much less powerful than the PBOC.

The PBOC asked banks and payment companies to invest more in technologies used to better identify crypto-related transactions, and know their clients better.

After the central bank's notice, AgBank, ICBC, CCB and Alipay all released separate statements saying they would conduct due diligence on clients to root out illegal crypto-related activities and shut down suspicious accounts.

Bitcoin tumbled almost 10 percent on Monday as recent volatility in the cryptocurrency market showed no signs of dampening down, with market players citing jitters over China's expanding crackdown on bitcoin mining in thin liquidity for the losses.

Bitcoin fell as low as US$32,094 to its lowest in 12 days, dragging smaller coins down. It was last down 8.3 percent, on course for its biggest daily drop in a month.

The world's biggest cryptocurrency, long plagued by volatility, has lost over 20 percent in the last six days alone and is down by half from its April peak of almost US$65,000. Still, it has gained over 10 percent this year.

Authorities in Sichuan Province ordered the closure of 26 mines last week, according to a notice widely circulated on Chinese social media and confirmed by a former bitcoin miner.

The notice reportedly instructed power companies to stop supplying electricity to all cryptocurrency mines by Sunday.

It vowed a "complete cleanup" and ordered local governments to carry out a "dragnet-style investigation" to find and shut down suspected crypto mines.

A former cryptocurrency miner said they had "closed everything" in line with the requirements in recent days.

"There have been working groups coming to check ... making sure we shut down operations and removed the machines," he said.

Sichuan is home to a large number of cryptocurrency mines, which require a colossal amount of energy supplied by the province's cheap and abundant hydropower.

According to a report in the Global Times, the closure of mines in the province has resulted in the shutting down of more than 90 percent of the country's bitcoin mining capacity.

All crypto mines in the sparsely populated but coal- and hydropower-rich regions of Inner Mongolia and Qinghai were also ordered to shut down in recent months, with citizens encouraged to report illegal mines.

Data on mining is scarce. Yet production of bitcoin in China accounted last year for about 65 percent of global production, according to data from the University of Cambridge, with Sichuan its second-biggest producer.

Companies that mine bitcoin – an energy-intensive process – typically hold large inventories of the cryptocurrency, with any moves to sell large amounts depressing prices.

"(The) crackdown on Chinese miners might mean that they are offloading coin into a thin market and taking us lower," said Ben Sebley of London-based crypto firm BCB Group.