Tighter Chinese rules concern sink emergent digital currency Bitcoin
BITCOIN extended Friday’s fall amid concern China will tighten rules on the digital currency to curb capital outflows.
The cryptocurrency slid 1.4percent to $888 (R12100) at 5:43pm in Hong Kong, after tumbling 10percent on Friday.
The People’s Bank of China’s (PBOC) Shanghai branch said its officials, along with the city’s financial office, asked bitcoin trading platform BTCChina.com to conduct selfchecks and rectify problems.
The State Administration of Foreign Exchange scrutinised major bitcoin exchanges, possibly to investigate use of the digital asset to evade capital controls, QQ.com reported.
Bitcoin rallied since early 2015 as Chinese buyers turned to alternative assets to hedge against the weakening yuan and take cash out of the nation.
By buying bitcoin onshore and selling it offshore for another currency, investors could evade the tightening scrutiny on fund outflows. Other than a ban on financial institutions’ involvement, Chinese regulators had taken a hands-off approach on the cryptocurrency.
“Bitcoin is one of the rocks they have not turned yet in terms of controlling the flows,” said Zennon Kapron, the managing director of consulting firm Kapronasia. “It’s inevitable that there is going to be something but the question is what the regulations will be when it happens.”
This is not the first time China has sunk bitcoin. In 2013, it banned financial institutions from handling bitcoin transactions, sparking a slide in price. The PBOC reiterated that stance saying bitcoin was a virtual commodity without the legal status of a currency. It characterised recent bitcoin moves as “unusual”.
Bitcoin has become increasingly volatile since rallying to a record-high $1 162 last Thursday, slumping 11 percent that day after the yuan jumped. In December it surged 28percent.
Policymakers were likely to require more reporting from bitcoin exchanges and incorporate their flows into the monitoring of the $50 000 quota Chinese citizens were given to convert yuan to foreign exchange – though it would be more challenging to do so with the decentralised cryptocurrency, said Kapron.
BTCC – which runs BTCChina.com – said it worked closely with the PBOC to ensure that it was operating in accordance with Chinese laws.
Huobi, another major Chinese platform, would also conduct strict self-checks as required by regulators and it planned to work with other bitcoin firms to establish industry standards, said its chief operating officer, Zhu Jiawei.
The industry could benefit from balanced, risk-based regulation, said Star Xu, the chief executive of OkCoin.
The PBOC’s Beijing and Shanghai branches met representatives of major bitcoin exchanges, including OkCoin, last Friday to discuss their operations, he said.
“The policy risks of bitcoin trading in China are higher” because the nation had capital controls, said Dong Dengxin, director of Finance and Securities Research Institution at Wuhan University. “If bitcoin trading disturbs China’s financial order, there’s a possibility it will be deemed illegal.”
Bitcoin surged 120 percent last year as the yuan dropped the most since 1994 and Chinese bonds and equities declined, though its total value of about $15 billion still pales compared with mainstream asset classes in the nation.
The digital asset traded at 6 188 yuan (R12 200) on Chinese firm OKCoin’s platform, around parity to the dollar price based on spot rates. As recently as Friday morning, bitcoin’s yuan price had traded at a premium to its dollar price.
“Until there’s more clarity over what the PBOC is planning or what exactly they mean, I think it will be difficult for bitcoin price to retrace the rally,” said Kapron.
A collection of bitcoin tokens in front of an illustration of binary code in this arranged photograph. The electronic coin – which trades and is regulated like oil and gold – tumbled 10 percent last Friday amid concerns that China will tighten rules on the digital currency to curb capital outflows.