China’s clampdown on cryptocurrencies has reportedly taken a new direction – to close down local bitcoin exchanges.
Initial reports from Chinese media that the government plans to close down domestic cryptocurrency exchanges have seen the virtual coin shed more than $100 since Friday. Bloomberg and the Wall Street Journal also reported Monday that that the country is planning to shut down digital currency exchanges.
Bitcoin sunk to a low of $4,241 in late trading in the U.K. Friday, and reached a low of $4,108 on Monday, according to Coindesk data.
It climbed to a record high of $5,000 dollars a little over a week ago, and has shot up by nearly 350 percent since the start of the year.
The latest reported crackdown follows a decision by Chinese regulators – including the People’s Bank of China (PBOC) – to ban initial coin offerings (ICOs). ICOs are a means of raising funds by selling off new digital tokens. A crackdown on ICOs would not affect the original cryptocurrency directly, but bitcoin still dropped more than $1,000 over a period of three days.
China’s latest move to shut down local exchanges would mark a new direction for the country in its efforts to regulate the market.
More regulation could follow
An analyst told CNBC last week that China could be just one of many countries lining up to put increasing regulatory pressure on the $150 billion cryptocurrency market.
“The Chinese market has been perhaps the most virulently exuberant in terms of its irrational excesses and across the world regulators are looking to gradually turn up the regulatory heat on this ICO phenomenon,” Charles Hayter, CEO and founder of digital currency comparison website Crypto Compare, told CNBC via email last Tuesday.
Experts also claimed the move could bring some much needed law and order to the market, by toughening up on fraud and scams.
‘Nothing is ever certain’
Crypto Compare’s Hayter said Monday that “nothing is ever certain” when it comes to China’s rhetoric on virtual cash.
“With China nothing is ever certain and a lot is left to be desired in terms of translation and interpretation. Rumors are that the Chinese are looking to ban bitcoin again and ring-fence their fiat yuan from the crypto world. The fears of capital outflows as well as money laundering are causing the Chinese state to ratchet the rhetoric,” he said via email.
He added that the latest move wouldn’t affect the market too deeply, as China “isn’t that important”.
“The recent moves against ICOs rocked the market but have left it relatively unscathed. Examples will doubtless be made – the question is who and when. The crypto markets realized earlier in the year that China isn’t that important as it only accounts for less than 20 percent of volumes – Japan, the US and Korea to an extent are more than enough to sustain healthy volumes. Uncertainty for the time being in China whilst for the rest of the world its business as usual.”
‘China needs to tread carefully’
Chamath Palihapitiya, venture capitalist and owner of the Golden State Warriors, took to Twitter Monday to voice his own thoughts on China’s cryptocurrency crackdown.
The former Facebook employee warned China to “tread carefully” in dealing with bitcoin’s meteoric rise.
The virtual currency operates on a peer-to-peer network, allowing traders to send transactions or payments without the need for a central authority.
In May, Palihapitiya said that he believed bitcoin to be “the ultimate insurance policy against autocracy, currency curbs and other forms of value destruction.”
Cryptocurrencies have seen increasing mainstream adoption, with celebrities such as Paris Hilton and Michelle Mone getting involved.
Socialite and TV personality Hilton said she would be participating in an ICO last month, led by a firm called Lydian.
Entrepreneur Mone launched a £250 million ($330 million) luxury property development in Dubai, and claimed it would be the first to be priced in bitcoin.