Due to perceived pressure from China’s central bank to clamp down on capital outflows, the nation’s three biggest bitcoin exchanges took steps to prevent withdrawals of the cryptocurrency form the country.
The major bitcoin exchanges said in separate statements on Thursday that while Huobi and OKCoin suspended bicoin withdrawals completely, BTC China subjected all bitcoin withdrawals to a 72-hour review. The central bank of China had directed the three venues and placed this as a requirement and the three venues said that the measures were in response to those requirements. The exchanges however clarified that the curbs will be dropped after updates to compliance systems and that the conversion to and from the yuan is not affected at all.
All such bitcoin exchanges that violate rules on foreign exchange management, money laundering, and payment and settlement will be closed down by the People’s Bank of China. This was reportedly said by the Chinese central bank to all the nine bitcoin venues while they were at a meeting in Beijing on Wednesday.
Undermining official efforts to clamp down on capital outflows and prop up the yuan, there are growing concerns that bitcoin is being used to spirit money out of the country and hence the Chinese authorities are scrutinizing the cryptocurrency very intently.
A 160 percent rally versus the dollar over the past year has been fuelled by the demand from investors in Asia’s largest economy which is the home to most of the world’s bitcoin trades.
A month’s time would be required for the upgrading of systems that would be in line with the new PBOC guidelines, Huobi and OKCoin said.
“The Chinese government is worried about capital flight,” said Arthur Hayes, a former market maker at Citigroup Inc. who now runs BitMEX, a bitcoin derivatives venue in Hong Kong.
“Bitcoin is seen as another way to move money out of China, even though most people trade it for onshore capital appreciation and as another asset in their portfolio.”
While it rose 0.8 percent at 1 p.m. in Hong Kong, after the exchange statements, Bitcoin dropped 7.8 percent on Thursday to $977.39.
As Chinese citizens became leading traders and miners, who deploy the vast computing power needed to make transactions with the cryptocurrency possible, the country and its bitcoin venues has taken a central role in the bitcoin market in recent years. Low cost of electricity to run mining computers, zero exchange fees and the hunt for alternative assets have further fueled the interest in this digital form of currency. However, after the biggest exchanges started charging transaction fees, deterring automated traders, the volume of bitcoin in China had taken a hit in January.
(Adapted from Bloomberg)