Bitcoin Trading Comes Under Threat of Chinese Government

Bitcoin Trading Comes Under Threat of Chinese Government

Tech-savvy Chinese bitcoin traders may have just seen their good days come to a halt as China’s central banks proceed to place sharper scrutiny over the virtual currency market.

Under pressure to pin down on capital outflow and prop up the Chinese currency, the People’s Bank of China warned nine bitcoin trading exchanges at a meeting in Beijing on Wednesday that it will shut down venues that crack foreign exchange management, money laundering, and other regulatory rules. The warning is followed by some of China’s fattest bitcoin exchanges announcing that they would prevent customer withdrawals of the cryptocurrency.

Three of China’s thickest bitcoin exchanges OkCoin, Huobi and BTCC, which had accounted for more than ninety percent of the global bitcoin market in January, had respectively suspended withdrawals or subjected all bitcoin withdrawals to a 72-hour review. The disruption is likely to temporarily constrain volumes further after already shrinking trading volumes since the government embarked tweaking down in January.

Analytics platform Sosobtc demonstrated the number of bitcoins traded on the three exchanges slipped from 13.6 million on Jan. Six to just over 120,000 on Feb. 9. but as an analyst pointed out, the exchange volumes might be misleading.

“Prior to January twenty four those exchanges didn’t charge a trading fee and the volume was largely compared to exchanges that were charging a trading fee. Without a trading fee, I could sit there and trade 1,000 BTC back and forward with myself all day and generate massive volume but it isn’t economically meaningful,” said Spencer Bogart, a bitcoin analyst at Needham & Co., one of the few Wall Street investment banks that covers bitcoin.

“Exacerbating this effect was the fact that these exchanges also provided leverage for trading. Commencing on January 24, in response to concerns from the PBOC, the Chinese exchanges began charging a trading fee and stopped suggesting leverage. In that sense it’s a one-time shock that has normalized trading volumes and not an ongoing ‘downward spiral’,” said Bogart.

But the announcement is notable and Bogart said he expects that “volume will fall significantly until withdrawals are re-enabled and confidence in the exchanges and regulators comes back.”

China has been the leading venue for bitcoin trading. Bitcoin prices have soared to near-record highs since last year even as the Chinese currency maintains a acute depreciation streak against the dollar. But bitcoin’s meteoric 120% build up in two thousand sixteen is also coincided with China’s ever-widening capital outflow.

According to an outlook report from the Institute of International Finance on Thursday, China is expected to have around $1 trillion of resident outflows, including errors and omissions, and $560 billion of net capital outflows in 2017. In the past, the Chinese government has resorted to several measures to stanch the money outflows, which includes requiring citizens to report overseas transfers over $Ten,000, discouraging Chinese companies from making overseas acquisitions and barring individuals from moving more than $50,000 out of the country each year.

However, none of these measures have managed to bring any pronounced improvements to the problem so far, which is lately evidence by China’s currency reserves hitting down below the $Three trillion mark. A lot of this is said to have come from Chinese investors’ resort to using bitcoin as a way to budge money out of the country.

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