Tighter Chi­nese rules con­cern sink emer­gent dig­i­tal cur­rency Bit­coin

The Star Early Edition - - BUSINESS REPORT - Justina Lee and Emma Dai

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.

PHOTO: BLOOMBERG

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.

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