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Chinese banking officials are clamping down on Bitcoin, sending the volatile cryptocurrency tumbling to prices not seen since November.
Regulators have banned domestic payment providers from offering clearing services to bitcoin exchanges, a major setback for the popular virtual money that still relies on its relative value to government-backed currencies like the US dollar and the Chinese yuan.
Chinese companies dealing in bitcoin now have until Chinese New Year to comply with new rules that will be “strictly enforced,” according to deputy director of payment clearance at the People’s Bank of China, as government officials followed through on their promise to ban financial institutions from conducting transactions in virtual currency.
“The PBOC statement on Dec. 5 was somewhat vague and there is more clarity now,” Zennon Kapron, managing director of financial consultancy Kapronasia, said in an interview in Shanghai. “The way it’s reading now is that after the Chinese New Year, you won’t be able to get your money off the platforms.”
That means customers have until January 31 if they want to cash out in fiat currency. Cashing out in bitcoin will still be an option, but it’s apparently little consolation for those rushing for the exits.
There goes bitcoin (again), via Bitcoinity
A single bitcoin is now worth 2150 yuan ($354) at the time of this writing on BTC China, the world’s largest exchange by volume, down nearly 70 percent from its high of over $1200.
The regulations also put a dampener on new demand since customers can no longer deposit further funds, as bitcoiners discovered early Wednesday morning. “Right now no way to deposit CNY [Chinese yuan] into BTCC [BTC China],” posted one Redditor, confirmed by an announcement made by the exchange on Weibo, China’s Twitter.
“Due to well known reasons, BTC China have to temporarily stop RMB deposit function,” the company wrote. “BTC deposits, withdrawal and RMB withdrawal function are unaffected. BTC China will continue operation. Please pay attention to our homepage. We will provide other ways to deposit soon in the future. We are sorry for the inconvenience.”
“RIP China,” mourned one user.
The swift and heavy-handed crackdown by China’s government appeared to be the final knockout punch for a movement beleaguered by a flurry of recent blows as countless countries weighed in on the controversial technology. Norway, Germany, and South Korea refuse to recognize bitcoin as a legitimate currency with the European Banking Authority warning of its speculative risks. Banking officials around the world are now rushing to follow China’s lead including Denmark, the latest nation contemplating regulation that will likely come in the form of “amendment to existing financial legislation.”
The US of course is ahead of the game in this department. Despite a positive Senate hearing in mid-November that saw the Department of Homeland Security and the Treasury Department cautiously embrace what they viewed as technological innovation, the reality is a harsh regulatory environment where “saying bitcoin in a bank is like yelling fire in a theater," according to a Forbes report. Some banks now classify bitcoin businesses in the same category as those who sell guns and fireworks while JP Morgan Chase has a strict policy of no bitcoin. Users believed to engage in the trading of bitcoin or related businesses have reported that their accounts have been flagged and promptly shut down. As such, there isn’t a single US-based virtual currency exchange in the top ten by volume.
It’s a major blow for what is fundamentally an ideological response to state-controlled money. Frustratingly for its believers, the decentralized virtual currency has never been able to fully sever its reliance on the global financial system. The use of centralized exchanges remain a frustrating point-of-failure, which serve as gateways for the digital into the fiat-denominated real world.
It’s a telling vulnerability that Chinese leaders have little issue exploiting as they look to crackdown on the once high-flying bitcoin. While observers have long tried to wrap their heads around Beijing’s apparent nonchalance toward a punkish protocol infamous for its money-laundering properties, the Party’s stance is now crystal clear. The flurry of companies to hop aboard the bandwagon and inflate this most recent bubble, including Baidu and China, were quick to fall in line, obediently announcing that they would no longer accept BTC for services rendered.
The rationale for such a hard-line attitude is much more obvious. After all, China is a country that obsessively controls its capital flows. Bitcoin’s disdain for national borders, which allows users to easily send money anywhere in the world in minutes, is a threat, one that the government will no longer take lightly. When the capital flows they’re worried about comes in the form of the yuan, blocking yuan-BTC convertibility instantly addresses the problem. And if you can’t buy stuff with bitcoin, which officials ruled against early this month, and you can’t trade it for real money, bitcoin becomes sort of irrelevant, at least for the Chinese, whose only option now is to sell before the window shuts for good next month.
All of which means that the value of anyone’s bitcoin stash is plummeting by the second, which predictably is bringing the entire altcoin ecosystem down with it. Well, all of them except Dogecoin, the irreverent peer-to-peer currency based on an internet meme. Since our coverage yesterday, it has increased its market capitalization by half a million dollars to $2,032,176, making it the 16th most valuable cryptocurrency in the world. Wow.
Bitcoin, however, has seen better days, though like its previous crashes, this could prove to be yet another temporary knockdown as it struggles with regulatory growing pains. In spite of crazy volatility, it continues to attract support from the onlooking establishment. Coinbase, one of the few US-based startups to successfully acquire necessary licenses, just announced a $25 million investment by Andreessen Horowitz. This latest injection from Silicon Valley’s elite came just a week after Bank of America provided a ringing endorsement for what the bank’s analysts believe to be a “serious competitor” to cash that will become a major player in electronic payments. The idea is that whatever eventually emerges from the regulatory rubble will be accompanied by an air of credibility and legitimacy.
So the jury’s still out. And those now celebrating bitcoin’s possible demise could end up just as foolish as the recent latecomers who believed they had discovered the secret to overnight riches. For the ones who have been around since the beginning, it’s simply yet another hiccup in the enduring movement’s march towards eventual mainstream relevance. Indeed, they might not even care.
“Price is the least interesting thing about bitcoin,” Roger Ver, popularly known as Bitcoin Jesus, told the Times over the weekend, reminding us that “almost everyone who got involved did so for philosophical reasons.”
If that may be true for early adopters, it’s little respite for the majority of late arrivals who joined with speculative interests, a notion supporters appear aware of, prompting a “suicide prevention post” to hit the bitcoin subreddit’s front page, which boasts 90,000 followers.
While it may be difficult for anyone who got in around the top of this latest bubble to accept, $400 for a string of ones and zeros created by some mysterious dude from the internet is, in the grand scheme of things, still a pretty penny. Such is the insane rollercoaster that is bitcoin. And as nausea-inducing as these fluctuations may be, there appears to be no end in sight for what is becoming an increasingly wild crypto-ride.