2017 for bitcoin has already been dizzying. The price broke $1,000 on January 1 and, last week, it broke through an all-time high. The price gains have come as a flurry of events in China, where the digital currency is defined as a ‘virtual good’, have left the Bitcoin scene there in disarray.
On January 5, the People’s Bank of China (PBoC) spoke with bitcoin exchanges informing them that bitcoin is still not a currency under Chinese laws. Rumors abounded that China would soon act to ban Bitcoin, a nation where the majority of the digital currency is generated via its mining process.
A milder interpretation of the action surmised the central bank was simply clarifying the nation’s laws – no offline promotion, no fake trades, devaluation of the yuan can’t be mentioned to promote digital currency, and they reiterated mandatory know your customer and anti-money laundering laws, among other conditions. PBoC also took this opportunity to warn investors about the digital currency’s volatility and risk.
On January 11, People’s Daily, China’s official paper, published a story on blockchain technology which included a graphic explaining Bitcoin.
Then Came Inspections
The PBoC Shanghai and the Shanghai Municipal Finance Office were already inspecting popular Bitcoin service provider and exchange, BTCC. The two authorities then inspected bitcoin exchanges Huobi and OKcoin. The latter stated in a customer service email:
“[Authorities] are conducting a one-week long inspection, only to understand the situation here. The purpose is to maintain financial stability, prevent financial risks, and regulate market trading behavior”, the Chinese exchange wrote. “No other intentions. The deposit and withdraw services are functioning properly”.
BTCC shared similar sentiments. “All good, just inspections”, the exchange tweeted. “A group of regulators consisting of the [Shanghai] branch of PBOC, the [Shanghai] Financial Affairs office & other related govt agencies visited BTCC”.
Among other things, the Chinese exchanges would have to cease zero-fee margins trading in bitcoin. In the Bitcoin Community, a discussion concerning a large percentage of the trades in China were being faked by exchanges increased during these events. BTCC then suspended its bitcoin margin loan service. Huobi and OKCoin also suspended margin trading.
On January 20, BTCC tweeted that it was “reviewing the operating experience of foreign counterparts and the charging of transaction fees, aiming to further curb speculation and prevent violent price fluctuation”. OKCoin announced it was taking similar actions.
BTCC, Huobi and OKCoin introduced fees on or around January 24. A fourth Chinese bitcoin exchange, Yunbi, introduced fees shortly thereafter.
PBoC Releases Statement Acknowledging Inspections of Chinese Bitcoin Exchanges
“PBoC Department of Business Management, Beijing Municipal Bureau of Finance, Municipal Bureau of Industry and Commerce and other relevant departments formed a joint group to enter Huobi, OKCoin and other bitcoin exchanges for an on-site inspection”, the statement reads. “According to problems found during the initial inspection, the group decided to continue the inspection mainly focusing on payment settlement, anti-money laundering, foreign currency management, information and financial security. The inspection group suggests that investors should pay attention to important aspects of bitcoin exchanges, such as legal compliance, market volatility, financial security and other risks, and participation in bitcoin investment with discretion”.
As the Lunar New Year approached in China, the PBoC announced it would start its own digital currency research institute to research blockchain technology.
PBoC then invited nine Chinese bitcoin exchanges to a closed door meeting, including CHBTC, BTCTrade, HaoBTC and Yunbi, to reportedly emphasize no margin trading and that the exchanges must comply with AML laws.
PBoC, sometimes called “Central Mom” in China, had elicited a response. OKCoin, Huobi and BTCC all announced the day after the meeting that they wound strengthen AML and KYC procedures.
China-based Bitcoin twitter account and news source, CnLedger, tweeted the following day: “BTCC, OKCoin, Huobi: will upgrade AML system according to laws & regulations, pausing BTC LTC withdraw during the upgrade. Estimated time: 1 month”.
Chinese Exchanges Pause Withdrawals
On February 13, Bitcoin service provider HaoBTC announced it would cease bitcoin exchange services but maintain others like its wallet service.
Localbitcoins, a peer-to-peer bitcoin trading platform, showed an explosion in interest following the PBoC actions and subsequent suspension of withdrawals on Chinese exchanges.
On February 8, Samson Mow, CEO of BTCC, left the company he helped to found. Little explanation was given. “We are sorry to inform you that our COO [Samson Mow] is leaving BTCChina”, wrote co-founder Bobby Lee.
Trading volumes by then had started to dwindle. OKCoin, which held the largest amount of bitcoin futures, saw its volume drop by more than 20,000 bitcoins from February 16-17.
The largest trader of OKCoin futures cut his contract from 50,000 to 8,500 bitcoins. Before the changes, China had led the world in bitcoin trading. Since its volumes collapsed to approximately 33%, Japan had become the new world leader in bitcoin trading.
Since the meetings with PBoC, exchanges in China have begun to phase-in new AML and KYC procedures, such as ID uploads and other verification processes – neither of which existed before the recent meetings.
Then There Was ‘Bityuan’
In the latter half of January, it became public that the PBoC was researching how to implement its own digital currency, RMBCoin, “to truly achieve the goal of money for the people”.
“Now it’s becoming clear that China’s central bank will be one of the first to issue a digital currency”, according to Andy Mukherjee, writing for Bloomberg.
Bloomberg added: “An initial version of bityuan will probably be a tame affair. Research at the People’s Bank of China favors a system where the monetary authority would issue the cryptocurrency to banks, which would supply it to their customers”.
What do you think the future will be for Bitcoin in China? Let us know in the comments below.
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