China’s central bank said Tuesday it had called for the shutdown of a company that “was suspected of providing software services for virtual currency transactions.” The statement, issued by the Beijing office of the People’s Bank of China, also warned institutions not to provide other services related to virtual currency, including providing business premises or marketing.

Lashing out against digital currencies is nothing new for the authoritarian state.

In 2013, the country ordered third-party payment providers to stop using bitcoin. Chinese authorities put a stop to token sales in 2017 and pledged to continue to target crypto exchanges in 2019.

But typically, each time Beijing has lashed out at the crypto industry, the sting has worn off and the rules eventually softened.

This time, however, appears to be different.

In May, China banned financial institutions and payment companies from providing crypto-related services. In June, there were mass arrests in China of people suspected of using cryptocurrencies in nefarious ways. That same month, regulators dialed up the pressure on banks and payment businesses to stop providing cryptocurrency services, and Weibo, the Twitter of China, suspended crypto-related accounts.

As of July, half the world’s bitcoin miners have now gone dark following Beijing’s call for a severe crackdown on bitcoin mining and trading.

“China’s government is doing everything they can to ensure that bitcoin and other cryptocurrencies disappear from the Chinese financial systems and economy,” said Fred Thiel, Marathon Digital Holdings CEO and Bitcoin Mining Council member.

So why China has essentially declared war on cryptocurrencies in 2021?

“We’re all wondering,” said Nic Carter, founding partner at Castle Island Ventures.

One theory is that it’s part of a broader law-and-order push ahead of the hundredth anniversary of the Chinese Communist Party this year.

“They’re cracking down on all sorts of undesirable behavior,” Carter said.

Crypto has long been synonymous with crime in the mainland.

“The largest-ever Ponzi in crypto was likely Plus Token, which was a Chinese project,” he said.

In that scheme, scammers swindled $5.7 billion from investors and dozens were arrested. “That will be lingering in their memory,.”

Another theory is that China is clearing the runway for its very own digital yuan, a central bank digital currency that’s been in development since 2014.

“Part of this is to ensure the adoption of China’s central bank digital currency, and part of this is most probably to ensure financial surveillance activities are able to see all economic activity,” explained Thiel. The digital yuan could, theoretically, enable the government greater power to track spending in real-time.

But Carter argues that bitcoin and the digital yuan are different to the point that they can’t really be considered direct competitors.

“That’s certainly the most commonly cited reason,” Carter said. “I just don’t know if I believe it. They’re such distinct systems from each other.”

The most likely motivator, according to Carter, is that Beijing is looking to stem capital outflows via stablecoins and cryptocurrencies. “China choking off the flow of yuan to crypto is a big deal,” he said.

When it comes to the price of bitcoin, stemming all Chinese retail into crypto “totally moves the needle,” according to Carter.

“I think that actually explains a lot of the market weakness and the sell-off,” he said. “The good news is that as the crackdown has accelerated, bitcoin has stayed pretty flat, which suggests the market has digested this information.”

Thiel believes that prohibiting bitcoin and crypto will actually help bitcoin in the long-term.

“If China’s goal was to kill bitcoin by shutting down 50% of the mining capacity and prohibiting trading – thus crashing its value to punish Chinese holders (a la Didi post IPO and Ant Financial),” it didn’t work.
“Instead, bitcoin proved its resiliency and the trades just moved offshore and miners elsewhere will take up the slack.”

Alyse Killeen, founder and managing partner of bitcoin-focused venture firm Stillmark, points out that this whole conversation may be a moot point, as a government’s capacity to effect a bitcoin ban will only continue to erode over time.

“I’d expect this type of news to have less of an impact on bitcoin’s exchange rate than it has historically,” she said. “It’s also true that there has been some level of industry inoculation to this news – bitcoin has been banned many times in many geographies, and yet today adoption is outpacing internet adoption at a similar lifecycle stage.”