Bitcoin set for fresh Chinese regulatory attack

People attend a bitcoin retail store opening in Hong Kong.
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People attend a bitcoin retail store opening in Hong Kong.

Already reeling from a regulatory onslaught, Bitcoin exchanges in China are braced for yet another blow from the central bank that would imperil their survival.

The People's Bank of China is considering whether to order the country's banks to close Bitcoin trading accounts, according to people familiar with the matter. If that order goes through, it would eliminate the last major remaining channel by which people in China can buy the virtual currency.

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Caixin, a local financial magazine, first reported the ban last week, saying it would come into effect by April 15. But the country's Bitcoin exchanges say they have not yet received notices from their banks and that business continues as usual, for now.

"This would be a bad thing for the exchanges. But it is certainly within the realm of what the government is allowed to do. We are taking things one day at a time," said Bobby Lee, chief executive of BTC China, one of the country's top exchanges.

The price of Bitcoin in China has fallen to Rmb2,950 ($475), down 17 per cent since Thursday when the Caixin report was published. Bitcoin has fallen nearly 60 per cent from its peak in November, shortly before the Chinese authorities announced the first of their measures to rein in the virtual currency's then-explosive growth in China.

Beijing ruled in December that individuals were free to buy and sell Bitcoin at their own risk. But after deeming it to be an online product rather than a currency, the government prohibited all Chinese financial institutions from conducting any Bitcoin transactions. It also barred third-party payment providers from serving Bitcoin exchanges.

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China's plucky Bitcoin exchanges – many of which are run by tech entrepreneurs who chafe against government regulations – thought they had found a way around the ban on payment providers. By accepting payment from customers directly in their corporate accounts, the exchanges themselves filled the gap left by payment providers and allowed people to continue buying Bitcoins.

The new central bank document threatens to end that, by preventing China's Bitcoin exchanges from even holding corporate bank accounts.

Nevertheless, an executive with one of China's leading Bitcoin exchanges, speaking on condition of anonymity, said he believed the new regulations were in draft stage and that they would not be as harsh as feared. He also said exchanges would still have workarounds if corporate accounts are closed

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"Our core concern is whether Bitcoin is legal. The PBoC notice, if it comes, might increase transaction fees and reduce trading volume, but Bitcoin would still be legal," he said.

The regulations to date have already undercut the Bitcoin market in China, with daily transaction volumes down by as much as 80 per cent from their peak last year, according to industry estimates.

Bitcoin offered people an easy route around China's tight capital controls, and many observers believe the central bank's crackdown was aimed at reinforcing the country's defences against cross-border capital flows.