China strengthened its anti-crypto stance on Friday, torpedoing bitcoin’s two-day winning run.
The People’s Bank of China (PBOC) said bitcoin, ether, and stablecoin tether do not qualify as legal tender and cannot be used in the currency market.
The central bank declared all virtual currency-related activities illegal, including derivative transactions and overseas virtual currency exchanges serving Chinese residents.
Bitcoin fell by nearly $2,000 to $42,800 after the PBOC news hit the wires, erasing Thursday’s 3% gain. The cryptocurrency was trading 4% lower on the day at 9:32 UTC.
China renewed its crackdown on cryptocurrency trading and mining in the second quarter amid pilot testing of digital yuan. However, according to China journalist Colin Wu, the latest central bank statement is quite detailed and mentions tether (USDT) as illegal for the first time. Tether, the largest stablecoin per market value, is widely used to fund crypto purchases and as collateral in decentralized finance.
Earlier this week, New York Times reported that regulators might declare stablecoins as systemic risk. Further, U.S. Securities and Exchange Commission chairman Gary Gensler compared stablecoins to poker chips.
Analysts told CoinDesk on Thursday that regulatory uncertainty presents a major downside risk to bitcoin in the short term.