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China might shut down domestic bitcoin exchanges

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China has never been a fan of digital currencies like bitcoin, and now the country appears bent on a major crackdown.

In the wake of China's recent ban on initial coin offerings (where you raise funds for a new cryptocurrency), anonymous sources told the Wall Street Journal that Chinese officials are ordering the shutdown of domestic bitcoin exchanges. The timeline is not clear -- one said the closure decision had already been made, while another heard the process would take "several months." If the scoop is accurate, however, the motivations are clear.

According to one of the tipsters, China is worried that virtual currencies are creating "too much disorder." That's not entirely without merit: people were buying up bitcoin and selling the yuan in 2016 on the belief that the conventional currency's value was going to tumble. And it's no surprise that China would be nervous about money that it can't fully control. It's relatively easy to skip the bank system and trade money beyond China's borders, and that's nightmare-inducing for an authoritarian government.

If China does shut down the exchanges, it could be a severe blow to bitcoin at large, and would certainly cause anxiety for people holding other formats like Ethereum.

An analyst told CNBC last week that China could be just one of many countries lining up to put increasing regulatory pressure on the cryptocurrency market.

"The Chinese market has been perhaps the most virulently exuberant in terms of its irrational excesses and across the world regulators are looking to gradually turn up the regulatory heat on this ICO phenomenon," Charles Hayter, CEO and founder of digital currency comparison website Crypto Compare, told CNBC via email last Tuesday.

Experts also claimed the move could bring some much needed law and order to the market, by toughening up on fraud and scams.

Chamath Palihapitiya, venture capitalist and owner of the Golden State Warriors, took to Twitter on Monday to voice his own thoughts on China's cryptocurrency crackdown.

The former Facebook employee warned China to "tread carefully" in dealing with bitcoin's meteoric rise.

China is home to vast and lucrative cryptocurrency mining operations for both bitcoin, Ethereum, and other cryptocoins. Three Chinese exchanges — Bitfinex, OkCoin, and BTCC — made up over 45 percent of the global market share over the last 30 days, according to Bitcoinity.org.

Many are skeptical of the rumored shutdown, including Bobby Lee, co-founder and CEO of BTCC. He tweeted a poll on September 8, asking whether followers thought the shutdown news was fake or real; so far, 83 percent have voted that they believe the news is fake. On the same day, BTCC tweeted from its main handle @YourBTCC that the exchange was operating normally.

OkCoin responded with an emailed statement: "Til now we haven't informed by any authorities about closing BTC exchanges, if that happens we will show notifications on our website in no time. Even if that's the case, we would be running offline trading for users, and your balance of coins in your account will be absolutely safe."

BitKan, a over-the-counter (OTC) trading service for cryptocurrencies in China, announced on Tuesday that it will suspend its OTC operations amid growing scrutiny from regulator.

In the news post, BitKan said that it would suspend the trading service beginning at 12:00 am on September 14. The suspension will affect both its Web-based and mobile users. However, withdrawals and deposits will remain active, according to the firm.

The statement only noted that the suspension is a result of the joint announcement published by People's Bank of China on September 4, regarding the ban on illegal initial coin offering fundraising and trading activities.

BitKan's statement explains: "After the suspension of the OTC service, BitKan's wallets will continue functioning normally. Deposition and withdrawal of funds will not be affected."

The service did not say when – or whether – it would resume its OTC trading. However, the disclosure nonetheless highlights the escalating impact the Chinese government's recent policy moves have had on the local cryptocurrency industry.

This isn't the first time China's flexed its regulatory muscle on bitcoin. Back in 2013, China banned the cryptocurrency from all banks and financial institutions, but left exchanges alone.

Amid rumors about the shutdown of domestic bitcoin exchanges, bitcoin sunk to a low of $4,241 in late trading in the UK on Friday, and reached a low of $4,108 on Monday, according to Coindesk data.

It climbed to a record high of $5,000 dollars a little over a week ago, and has shot up by nearly 350 percent since the start of the year.


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