Bitcoin’s value took a tumble this week after the People’s Bank of China issued an official statement about its stance on the digital coin, knocking the cryptocurrency’s value down into the $800s after lofty $1200 highs. China has been largely responsible for Bitcoin’s dramatic 500% rise in value over the last month, with yuan dominating the trading markets, according to the Genesis Block. China’s government evidently felt that the cryptocoin was getting too hot to ignore. In a statement Thursday, the People’s Bank of China and four other ministries and agencies announced that banks and payment companies were prohibited from dealing with the coin, but that the country’s citizens are still free to buy and sell it. So what does that mean for Bitcoin, and Bitcoin businesses, in China?
Notice on Bitcoin, as translated by Perkins Coie: “itcoin is a specific virtual merchandise, which does not have the same legal status as currency, and cannot and should not be used as currency in circulation in the market.”
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The notice says that financial institutions and payment institutions can’t start using bitcoin, or exchange it for RMB, or act as a middleperson for bitcoin payments. That means you won’t be able to deposit bitcoin into a Chinese bank anytime soon. It also forbids the development of a business like Bitpay, a popular service here that allows merchants to take cryptopayment and immediately convert it into fiat. This is likely to slow the already tortoise-like development of a bitcoin ecosystem for real goods there; no one in China will be buying a Tesla Model S with bitcoin anytime soon.
China made it very clear that it doesn’t consider Bitcoin a currency or legal tender, and that it shouldn’t be used to pay for real goods and services. Shortly after the statement came out, Baidu (a.k.a. China’s Google) which was famously accepting bitcoin for its Jiasule security services, announced it would no longer accept the virtual currency as payment.
Notice on Bitcoin, as translated by Perkins Coie: “No financial institutions and payment institutions should conduct business associated with bitcoin… nternet websites providing bitcoin-related services such as registration and transaction should record with the telecommunications regulatory agencies.”
There wasn’t a whole lot of real economic activity going on via bitcoin in China, though. The big question is how the Chinese government sees China’s bitcoin exchanges, such as BTC China and OKCoin, which are seeing the highest volume of bitcoin trading in the world. Are they financial institutions or are they simply “internet websites providing bitcoin-related services”? Most experts think it will be the latter, and BTC China itself greeted the news as welcome, with CEO Bobby Lee telling Bloomberg News they were happy to see the government regulating Bitcoin.
“My personal view is that this is a step in the right direction that they are going to regulate this industry,” says Ron Cao, a partner at Lightspeed China, which invested $5 million of venture capital into BTC China. “The market has been too hot. There’s too much activity. I think they wanted to put a halt on the speculative phenomenon.”
Now these websites are required to register with China’s “telecommunications regulatory agencies.” This will hopefully prevent scams like the one in Hong Kong, where an exchange shut down overnight taking $4 million worth of investors’ money. They are responsible for educating users about the risks of bitcoins and for preventing money laundering by forcing users to provide identification and reporting suspicious transactions to authorities. Businesses are reacting quickly. BTC China already had a “trade at your own risk” disclaimer on its site, but it is now also requiring users to provide credentials.
