China Is Said to Ban Bitcoin Exchanges While Allowing OTC

Bloomberg News
September 11, 2017, 10:36 AM GMT+6 September 11, 2017, 4:27 PM GMT+6

China plans to ban trading of bitcoin and other virtual currencies on domestic exchanges, dealing another blow to the $150 billion 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.

Bitcoin 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 percent 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 percent 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 realm.”

OKCoin, BTC China and Huobi, the nation's three greatest bitcoin trades, said on Monday that they hadn't gotten any administrative notification concerning bans on cryptographic money exchanging. Each of the three settings detailed exchanges on Monday, with bitcoin rising 7.6 percent on OKCoin starting at 5:09 p.m. neighborhood time.

Read more about a week ago's prohibition on beginning coin offerings here.

While bitcoin clients will in any case have the capacity to exchange digital currencies in China without trades, the procedure is probably going to be slower and accompanied expanded credit hazard, experts said.

The trade boycott is probably not going to majorly affect the costs of cryptographic forms of money all inclusive in light of the fact that settings outside China will keep exchanging, as indicated by FBG Capital's Zhou. The nation's part in the bitcoin advertise had just begun contracting as of late as experts fixed direction. At a certain point, trades in China represented more than 90 percent of the world's bitcoin exchanges.

The greater hazard for worldwide dealers might be the enormous rally in bitcoin costs, as per McFarland.

"At whatever point you begin to catch wind of Hong Kong cabbies getting to be plainly tycoons from purchasing bitcoin, you begin to think this is not really determined by essentials," he said. "So you will get very significant pullbacks eventually."