Chinese authorities are working on a plan to shut down the country’s bitcoin exchanges, as the digital currency’s wild price fluctuations clash with the government’s focus on controlling financial risk ahead of a key political transition next month.
A multi-agency task force on internet finance led by the People’s Bank of China (PBoC) has drafted rules that would ban domestic trading platforms for bitcoin and other digital currencies, according to Caixin, a respected Chinese financial news website.
Chinese exchanges including OKCoin, BTC China and Huobi.com accounted for 98 per cent of all bitcoin trading in the six months through to mid-January this year, according to bitcoinity.org. But that ratio has since fallen to 18 per cent in the past six months, following a central-bank crackdown fuelled by concern over money laundering and capital flight.
A ban would follow China’s move last week to ban cryptocurrency-based fundraising schemes known as initial coin offerings.
Earlier this year, the PBoC forced bitcoin exchanges to halt coin withdrawals temporarily while the platforms implemented stronger “know your customer” requirements and measures to ensure that bitcoin was not used to circumvent China’s foreign-exchange controls.
The latest moves appear to be less motivated by concerns over capital flight, as the renminbi has gained strongly in recent months. On Friday, the central bank cancelled earlier rules designed to curb renminbi depreciation.
Instead, analysts say regulators are nervous over the soaring price of bitcoin. President Xi Jinping has called for a focus on “financial security” as the Communist party prepares to conduct a once-in-five-years leadership transition next month.
Regulators were criticised for standing by idly in 2015 as a bubble in the domestic stock market took shape, then burst dramatically. Though far fewer Chinese are exposed to bitcoin, a sudden drop in the price of the currency would dent the party’s efforts to project confidence and stability as it chooses new leaders.
A bitcoin correction looks increasingly overdue. The digital currency traded at about $4,270 on Monday, down from $4,646 before China announced its ICO ban last week but still up from $624 a year ago, according to bitcoinity’s average of major exchanges.
Huobi and BTCC said in announcements over the weekend that they had not received official notices from the government about a shutdown. The central bank did not respond to a request for comment on Monday.
If the exchanges were shut down, Chinese investors could still trade bitcoin in over-the-counter transactions, but trading volume would suffer, market participants said.
The draft rules would ban trading platforms that enable participants to exchange digital currencies for legal tender, Caixin quoted a member of the task force as saying. The PBoC declared that bitcoin was a “virtual good”, not a currency.
Regulators have also been tightening supervision of other areas of internet finance, especially peer-to-peer lending. One of the biggest P2P platforms said in July it would exit the industry.