THE DEFAULT POSITION of Chinese authorities is that if it exists, it should be regulated. Cryptocurrencies are a prime example.
BTTChina (BTTC), one of the three leading bitcoin exchanges in China and, by extension, one of the largest in the world, says it is to cease trading on September 30 because of regulatory pressure being brought to bear on it. Earlier this week, the National Internet Finance Association, a self-regulatory industry body that the People’s Bank of China set up in 2015-16, warned that there was no legal basis for exchanges trading cryptocurrencies like bitcoin and litecoin and that they were a source of speculative risk for investors and also a conduit for illegal activities such as drug trafficking and money laundering.
Shanghai-based BTTC has read the writing on the wall for domestic cryptocurrency exchanges. So have investors; bitcoin fell by 20% against the US dollar in the latter half of the week.
Word in the industry is that an outright ban on most or all activity one bitcoin exchanges will be instituted shortly. Huobi and OKcoin are the other two leading bitcoin exchanges in China. Both are reported to have received administrative guidance to shut by the end of the month, though both have said they have received no official instruction to do so. (Update: Huobi and Okcoin have reportedly been given a month’s extension as they have not been heavily involved in ICOs; but authorities expect them to cease trading by October 30.)
If instituted a ban would follow the proscription of initial coin offerings (ICOs), an unregulated means of raising funds increasingly favoured by high-tech startups. These raised 2.6 billion yuan ($398 million) in China in the first six months of 2017 across 65 offerings, which accounted for 20% of the global total. China is the first country to ban ICOs.
A working party of the central government’s office overseeing internet financial risk has been underway for several months, but Chinese regulators are not alone in their concerns about bitcoin exchanges. Their counterparts in Hong Kong, Singapore, the United States and the United Kingdom have expressed similar misgivings in recent months.
The changing mood in China has had a chilling effect on bitcoin. The cryptocurrency reached an all-time high of $5,013 on September 1 but fell below $3,000 this week on the latest reports of the authorities’ crackdown.
The internet financial risk working group says that whereas China accounted for 90% of bitcoin trading volumes two years ago, its share of the now $100-billion-a-year market has fallen to 30%. Trading volumes in Japan and South Korea have been on the rise.
An outright ban on trading in China would hit bitcoin, though not as hard as it would have in the recent past. Bitcoin is still the dominant cryptocurrency though its market share of total transactions is being eroded as Chinese have become less enamoured with it.
However, the setback might equally provide time for the development of an indigenous cryptocurrency. At the same time the central bank is cracking down on the bitcoin exchanges, it is encouraging research into the blockchain technology that underpins virtual currencies.