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China Strikes Bitcoin, Drops Its Value 12%

China Strikes Bitcoin, Drops Its Value 12%

Wednesday, 17 January, 2018 - 13:00
A Bitcoin paper wallet with QR codes and a coin are seen in an illustration picture taken at La Maison du Bitcoin in Paris, France, May 27, 2015. REUTERS/Benoit Tessier/File Photo

China is heading towards banning the centralized trade of virtual currencies as well as venues and applications that use these currencies, namely Bitcoin. Following the leaked statements, Bitcoin plunged to a six-week low, below $12,000, before the price exceeded again the $12,000 by a little.

Bitcoin was traded at a rate above $14,000 on Monday before reports circulated that the Chinese government is planning to limit its trade. It lost between $16,000 and $18,000 on trade venues dropping more than 12 percent to a low of $10,969.15 on Tuesday, its lowest since early December

Both China and South Korea are considered one of the biggest trade markets for virtual currencies, and thus leaks and statements from these countries affect the currencies.

On Tuesday, Bloomberg reported unnamed sources saying that the Chinese government is planning to ban local access to platforms that trade with virtual currencies.

In the memo outlining details of discussions at a meeting of internet regulators and other policymakers last week, PBOC Vice Governor Pan Gongsheng said the government would continue to apply pressure to the virtual currency trade and prevent the buildup of risks in that market.

"Pseudo-financial innovations that have no relationship with the real economy should not be supported," he said.

National and local authorities should ban venues that provide centralized trading of virtual currencies, of which bitcoin is the biggest, Pan said. They also need to ban individuals or institutions that provide market-making activities, guarantees, or settlement services for centralized trading of the currencies, such as online "wallet" service providers, according to Bloomberg.

Authorities should also block domestic and foreign websites and close mobile apps that provide centralized virtual currency trading services to Chinese users, and sanction platforms that provide virtual currency payment services, according to Pan.

He proposed local governments use regulations around electricity prices, land use, tax and environmental protection to guide businesses involved in such activities "toward an orderly exit".

South Korea’s Justice Minister Park Sang-ki recently proposed a trading ban and the government has put other controls into place in the face of what some see as a “cryptocurrency mania” in the country.

However, many authorities are aiming to regulate these currencies rather than fully terminating its trade.

Member of the board of Germany's Bundesbank, Joachim Wuermeling suggested that any attempt to regulate cryptocurrencies would require international cooperation.

European Union states and legislators agreed in December 2017, on stricter rules to prevent money laundering and terrorism financing on exchange platforms for bitcoin and other virtual currencies.

But Wuermeling said national rules may struggle to contain a global phenomenon.

"Effective regulation of virtual currencies would therefore only be achievable through the greatest possible international cooperation, because the regulatory power of nation-states is obviously limited," he concluded.

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