By Elaine Dunn
Bitcoins have taken a beating ever since the late-February bankruptcy filing of Tokyo-based Mt. Gox exchange. From a peak value of $1,145.25 in December 2013, it’s fallen approximately 60 percent to $350 early-April, but has rebounded to $505 Easter weekend.
At a trading rate of 10,000 bitcoins per hour, China bitcoin trading far exceeds any other country. However, with renewed clampdown on the virtual currency from the People’s Bank of China (PBOC), Chinese bitcoin exchanges are once again bracing themselves for another blow to their survival.
Compared with the current decree, PBOC’s December 2013 warning for financial institutions to stop dealing in bitcoins is lame. On March 27, PBOC was said to have notified banks and payment companies to close bitcoin trading accounts by April 15. This new directive prohibits clearing, account opening and other services for bitcoin exchanges. As a result, bitcoin prices dropped more than 10 percent that day.
Even though two of the largest Chinese bitcoin exchanges, Shanghai-based BTC China and Shenzhen-based BTC38, said they had not received any notification by their banks or processors, by April 3 they had suspended some money transfer services. Two other exchanges, Beijing-based OKCoin and Shanghai-based FXBTC, announced on their respective websites that they had received notification from their bank and processor. OKCoin said it would stop servicing deposits via prepaid cards while debit cards and yuan withdrawals are not affected. FXBTC said it would stop debit-card deposits as of April 3 and temporarily halt withdrawals by April 6.
One would think after the December PBOC directive and the increasing scrutiny of virtual currencies worldwide, Chinese interest in bitcoins would diminish. Not so. One of the beauties of bitcoin is that it is good for getting around capital controls and other monetary regulations. By buying bitcoins with yuans and selling into other currencies, Chinese bitcoin owners can successfully evade capital controls. The increasingly intolerant attitude toward bitcoin by the Chinese government and is current regulations may be its way of stopping cross-border capital outflow. And, unlike other investors, Chinese bitcoin investors are mostly speculative, in it short-term to turn a quick profit, prompting the Chinese government to say in December that bitcoin is not a legal currency and people who buy and sell it so do at their own risk.
Will the new regulations signal the end of bitcoin in China? Not likely. In the near future, the exchanges’ activities will no doubt be negatively affected; but as they have demonstrated after the December PBOC ruling, they probably will come up with some creative way(s) to circumvent the latest restrictions.
BTC38’s website says it “will comply strictly with the central bank's directive and rules." It also said yuan withdrawals and deposits in bitcoins will continue. OKCoin, China’s largest virtual currency trading center, indicated that if Chinese exchanges can’t accept money into corporate accounts, they could incorporate themselves overseas and move their servers overseas.
BTC China mentioned customers could use cash to make direct deposits to BTC China. As of April 10, BTC China’s CEO Bobby Lee said bitcoin trading volume at his exchange was down by 80 percent from its peak. BTC China launched “Picasso ATM,” a Web-based app that allows the exchange’s clients to sell their own bitcoins. The transactions are completed with confirmation codes via smartphones and transferred to the exchange’s customer accounts. BTC China has taken a further step toward cash transactions - it unveiled the country’s first ATM bitcoin machine in a Shanghai coffee shop.
So … Chinese bitcoin exchanges may be inconvenienced, but definitely not beaten! The Chinese exchanges will certainly take a wait-and-see approach to see how the regulations will be enforced before devising different ways to bypass them.