For years, bitcoin has attracted a huge market base in China, which churns out over 90 percent of trade within the global bitcoin market.
Following the meeting, the price of bitcoin fell drastically, despite the fact that bitcoin profits had peaked last month. The price of bitcoin fell by more than $250 a few hours after the discussion.
The central bank expressed dissatisfaction at the potential of margin lending or money laundering occurring within bitcoin markets, according to CNBC.com. Adam White, the sitting vice president of Coinbase, predicted that the warning from the PBOC will set some regulatory precedents and create legitimacy within the global bitcoin operation, pushing bitcoin into the mainstream. Bitcoin will be seen as a more legitimate means of currency in China, according to White.
White attributed China’s flourishing bitcoin activity in the markets to its lack of fees for trading.
“We see China doing on average greater than 90 percent of the daily trading volume, and that’s primarily because [of] the way the Chinese exchanges are structured. Customers tend to move money into a Chinese digital currency exchange and they trade many times over and over because there’s no friction applied.” Other exchanges throughout the world charge for friction, which helps to normalize the trading volumes.
Back in 2013, the PBOC advised financial institutions to steer clear of bitcoins, which led to the price of bitcoin falling by $300. It is speculated that the price fell so drastically because the warning sent a fear that the Chinese government would try to intervene in bitcoin operations.
Later that year, the PBOC released a statement that clarified that, while it did not believe that bitcoin itself was a threat, the PBOC believed that bitcoin created some consumer risk that should be brought to light. The dangers, as indicated by the PBOC, primarily revolved around the constant risk of money laundering. Virtual money is also difficult to regulate by government standards and can create global economic leaks in international trading systems.
Despite all of the difficulties that came to light during the major declaration against bitcoin in 2013, the virtual currency was not outlawed in China. The new agreement stated that companies merely had to register with authorities in order to use bitcoin as currency.
This issue is back in focus in China because the PBOC has a similar goal: to warn citizens that bitcoin is a virtual good and has no legal tender status, which may significantly alter the decision to get involved on the part of the consumer.
To resolve the issue in 2013, the PBOC instructed financial institutions to prohibit and disclose anonymity in relation to bitcoin transactions. All exchanges must be accompanied by several documents of identification from customers and any suspicious activity, such as particularly large transactions, should be reported to the proper authorities. These parameters were set by the PBOC to better secure the market against money laundering.
According to CoinDesk.com, “Although the total value of bitcoins in circulation is dwarfed by national currencies, Chinese authorities seem to be taking the issue very seriously. Many Chinese citizens are investing their savings in bitcoin and some even argue they are basically hoarding the currency. This also represents a risk in terms of price fluctuations, as many speculators have no qualms with leaving the market at the first sign of trouble.”
Bitcoin usage highlights several risks associated with digital currency, such as the potential for hackers, criminals and launderers to gather. Additionally, since digital currency often goes unregulated by a greater institution, the floor has the potential to be threatened by illegal trading sites and scams.
Representatives from Huobi and OKCoin did not yet respond publicly to the news of the potential closure issued in the meeting. However, BTCC representatives agreed to work closely with officials from the PBOC in order to adhere to the currency regulations in China.
BTCC representatives also took time to admonish the public about the dangers associated with digital currency, but indicated that the bitcoin exchange would like to minimize those dangers.