China to ban bitcoin trading on exchanges

China plans to ban trading of bitcoin and other virtual currencies on domestic exchanges, dealing another blow to the $150 billion cryptocurrency market after the country outlawed initial coin offerings last week.

The ban will apply only to trading of cryptocurrencies on exchanges, according to people familiar with the matter, who asked not to be named because the information is private. Authorities don’t have plans to stop over-thecounter transactions, the people said. China’s central bank said it couldn’t immediately comment.

Bitcoin slumped Friday after Caixin magazine reported China’s plans, capping the virtual currency’s biggest weekly retreat in nearly two months. The country accounts for about 23 percent of bitcoin trades and also is home to many of the world’s biggest bitcoin miners, who use vast amounts of computing power to confirm transactions in the digital currency.

“Trading volume would definitely shrink,” said Zhou Shuoji, Beijing-based founding partner at FBG Capital, which invests in cryptocurrencies. “Old users will definitely still trade, but the entry threshold for new users is now very high. This will definitely slow the development of cryptocurrencies in China.”

While Beijing’s motivation for the exchange ban is unclear, it comes amid a broad clampdown on financial risk in the run-up to a key Communist Party leadership reshuffle next month. Bitcoin has jumped about 600 percent in dollar terms over the past year, fueling concerns of a bubble. The People’s Bank of China has done trial runs of its own prototype cryptocurrency, taking it a step closer to being the first major central bank to issue digital money.

“There has been a general tightening of the screw on regulating financial and monetary conditions,” said Mark McFarland, chief economist at Union Bancaire Privee SA HK in Hong Kong. “All of these things suggest a longer term process of tightening scrutiny of activities that aren’t in the normal sort of monetary realm.”

OKCoin, BTC China and Huobi, the country’s three biggest bitcoin exchanges, said Monday that they hadn’t received any regulatory notices concerning bans on cryptocurrency trading.