Mike Caldwell, a 35-year-old software engineer, holds a 25 Bitcoin token at his shop. (Rick Bowmer, AP, file)
Beijing - China plans to ban trading of
bitcoin and other virtual currencies on domestic exchanges, dealing
another blow to the $150bn cryptocurrency market after the country
outlawed initial coin offerings last week.
The ban will only apply to trading of cryptocurrencies on exchanges,
according to people familiar with the matter, who asked not to be named
because the information is private. Authorities don’t have plans to stop
over-the-counter transactions, the people said. China’s central bank
said it couldn’t immediately comment.
slumped on Friday after Caixin magazine reported China’s plans, capping
the virtual currency’s biggest weekly retreat in nearly two months. The
country accounts for about 23% of bitcoin trades and is also home
to many of the world’s biggest bitcoin miners, who use vast amounts of
computing power to confirm transactions in the digital currency.
“Trading volume would definitely shrink,” said Zhou Shuoji,
Beijing-based founding partner at FBG Capital, which invests in
cryptocurrencies. “Old users will definitely still trade, but the entry
threshold for new users is now very high. This will definitely slow the
development of cryptocurrencies in China.”
While Beijing’s motivation for the exchange ban is unclear, it comes
amid a broad clampdown on financial risk in the run-up to a key
Communist Party leadership reshuffle next month. Bitcoin has jumped
about 600% in dollar terms over the past year, fueling concerns
of a bubble.
The People’s Bank of China has done trial runs of its own
prototype cryptocurrency, taking it a step closer to being the first
major central bank to issue digital money.
“There has been a general tightening of the screw on regulating
financial and monetary conditions,” said
Mark McFarland, chief economist at Union Bancaire Privee SA HK in Hong
Kong. “All of these things suggest a longer term process of tightening
scrutiny of activities that aren’t in the normal sort of monetary
OKCoin, BTC China and Huobi, the country’s three biggest bitcoin
exchanges, said on Monday that they hadn’t received any regulatory
notices concerning bans on cryptocurrency trading. All three venues
reported transactions on Monday, with bitcoin rising 6.3% on
OKCoin as of 11:56 local time.
While bitcoin users will still be able to trade cryptocurrencies in
China without exchanges, the process is likely to be slower and come
with increased credit risk, analysts said.
The exchange ban is unlikely to have a major impact on the prices of
cryptocurrencies globally because venues outside China will continue
trading, according to FBG Capital’s Zhou.
The country’s role in the
bitcoin market had already started shrinking in recent months as
authorities tightened regulation. At one point, exchanges in China
accounted for more than 90% of the world’s bitcoin transactions.
The bigger risk for global traders may be the massive rally in bitcoin prices, according to McFarland.
“Whenever you start to hear about Hong Kong taxi drivers becoming
millionaires from buying bitcoin, you start to think this is not
necessarily driven by fundamentals,” he said. “So you will get quite
substantial pullbacks at some point.”
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