Bitcoin’s value fell by over $500 last Friday and continued to drop over the weekend. China is yet to officially announce the ban on cryptocurrency exchanges. The initial reports from Chinese news outlet Caixin have since been verified by several other sources, prompting fears of a mass selling action as traders begin to rid themselves of their coins.
The ban is significant because China is currently one of the largest countries for Bitcoin miners. Many of the largest mining communities are based in the country. Together, they contribute massive amounts of computing power to the number crunching processes that add new Bitcoins to the blockchain.
23 percent of all Bitcoin trades take place in China. An enforced ban on trading activity would cause a pronounced slump in overall trading volume. With the official exchanges closed down, there would be no viable entry route for new investors and Bitcoin’s progress in China would slow significantly.
China’s reasons for the unconfirmed ban are currently unclear. Bloomberg notes the country is moving towards tighter financial regulations as it prepares for a Communist Party leadership revision next month. Bitcoin’s 600 percent gains this year have prompted fears the notoriously volatile cryptocurrency is about to experience its most violent collapse yet. China’s answer could be to stop trades altogether.
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Under the proposed rules, users will still be able to engage in private trading of cryptocurrencies. The process may be slower and less accessible to newcomers. It’ll involve direct transfers between Bitcoin wallets or brokers, instead of easy sales on centralised exchange platforms. The rules would discourage firms from trading in cryptocurrencies and hand the Central Bank more control over the digital payment methods.
The reports come just a few days after China outlawed initial coin offerings (ICOs). The fundraising method has leapt in popularity this year, especially with startups exploring blockchain technology. Companies raising money through ICOs issue investors digital currency instead of regular shares. China has now banned the practice, placing an immediate stop on new ICO attempts and ordering existing schemes to refund investors their cash.
China’s not the only country concerned about ICOs. Authorities in the U.S. and China have issued warnings that ICOs might be used for unethical reasons, such as the rapid inflation of shares. However, China’s decision to ban them altogether has been widely interpreted as a sign it’s growing increasingly hostile to cryptocurrencies in general. The country’s Central Bank is thought to be mulling the launch of an “official” Chinese Bitcoin alternative which would be approved for use in the country.
