China Fires Back at EU with Crypto Counter-Sanctions: The Escalation Explained

Geopolitical tensions hit the blockchain. China just weaponized digital assets in its latest clash with the EU—turning crypto into the new battleground for financial sovereignty.

Here's how the dominoes fell:

The EU's sanctions package targeted Chinese tech firms using crypto rails. Beijing responded by freezing out European digital asset service providers—a move that's already sending shockwaves through DeFi markets.

Market fallout? Stablecoin volumes between EUR pairs plummeted 40% overnight. Asian exchanges are scrambling to relist yuan-pegged assets while European regulators hold emergency meetings.

This isn't just about regulation anymore. When nation-states start treating crypto like artillery shells, even Bitcoin maximalists might miss the days when governments just ignored us. (Though let's be real—the hedge funds will still find a way to front-run the policy changes.)

Lithuania Becomes Target Despite Limited Business Ties

The action follows the EU’s July 18 sanctions on two Chinese financial institutions. Brussels targeted them in its 18th round of Russia sanctions. The EU said the Chinese banks provided cryptocurrency services that undermined the effectiveness of sanctions.

Both sanctioned banks are based in Lithuania. According to a Bloomberg report, neither conducts significant business in China. UAB Urbo Bankas CEO Marius Arlauskas said his bank has no Chinese business relationships.

AB Mano Bankas also confirmed it doesn’t operate actively in China. The sanctions will have no impact on daily operations, suggesting China chose symbolic targets rather than economically damaging ones.

Tensions Reflect Broader China-Lithuania Dispute

Beijing’s choice of Lithuanian banks reflects ongoing diplomatic tensions. China downgraded ties after Lithuania allowed a Taiwan representative office in Vilnius. Last year, Lithuania expelled three Chinese embassy employees for lacking proper accreditation.

The banking sanctions extend China’s economic pressure campaign against Lithuania. Beijing considers Taiwan its territory and opposes international recognition.

The European Commission said it will study China’s measures before deciding on the next steps. EU spokesman Olof Gill noted that Brussels remains open to finding mutually acceptable solutions. The EU has been engaging with China on the issue of sanctioned entities.

China’s Commerce Ministry demanded that the EU correct its “wrongdoing” and stop harming Chinese interests. Beijing called the original EU sanctions a violation of international law. The ministry said EU actions severely damage legitimate Chinese business rights.

Crypto Sanctions Highlight Growing Financial Weapon Use

Cryptocurrency services have become particular targets due to governments’ potential sanction-evasion uses. Both sides now restrict financial institutions from pressuring policy changes.

China’s banks previously faced pressure similar to that of the US over Russian business. Some state-owned lenders tightened funding to Russian clients after secondary sanctions threats. The pattern suggests financial warfare will continue expanding across jurisdictions.