If bitcoin is an outlaw in the world of currencies, China has until recently been its Wild West. Perhaps no longer. Chinese regulators are planning to shut down the country’s once hugely popular bitcoin exchanges, The Wall Street Journal reported Monday. The news should send a chill through the cryptocurrency world.
Sure, China doesn’t dominate bitcoin activity quite as much as it used to. At the start of this year, Chinese exchanges accounted for more than 90% of bitcoin trading globally. Trading volumes have fallen off a cliff since Beijing forced exchanges to adhere to anti-money-laundering rules and introduce trading fees. Still, these exchanges host nearly a third of global bitcoin trading.
More concerning for bitcoin afficionados is that Beijing’s intolerance of cryptocurrencies appears to be growing. Regulators last week banned so-called initial coin offerings in China—ICOs work like IPOs, except instead of an equity stake in a company, investors get virtual coins they can use in the future to buy the company’s yet-to-exist products or services.
Until the last few days, Beijing’s antipathy hardly seemed to have dented bitcoin. The cryptocurrency has quadrupled in value this year.
But it has dropped around 10% in the past two days, since talk of shutting down Chinese exchanges first emerged. The worry now is that Beijing’s next steps may include attempts to tamp down the amount of trading Chinese investors engage in. Figures are hard to come by, but it’s highly likely Chinese traders are still driving much of the trading activity in bitcoin away from organized exchanges.
The hard truth is that a loosely regulated, somewhat complicated financial instrument like bitcoin was never likely to sit well with a government that is still obsessed with micromanaging its own hard currency, the yuan. That’s one more reason to suspect this year’s bitcoin bubble is reaching its limits.
Write to Jacky Wong at [email protected]