Rumors of China’s crackdown on Bitcoin gather momentum

Rumors of China’s impending crackdown on Bitcoin continue to hog the headlines, with a number of media outlets reporting that Chinese regulators would no longer allow payment processors to serve bitcoin exchanges.

News of the ban first surfaced on Monday night, when Coindesk reported that People’s Bank of China officials told third-party payment processors that they’d no longer be able to interact with Bitcoin exchanges. This immediately sparked a frenzied debate within the Bitcoin community on sites like Reddit and elsewhere, while the value of BTC slumped by around 30 percent at the same time.

Now, Bloomberg is reporting that Zhou Jinhuang, deputy director of payment clearance at the People’s Bank of China, has made a statement to China Business News, saying that the rumors are indeed true and that third-party payment services will no longer be able to fund Bitcoin exchanges. Meanwhile, Coindesk, which first broke the rumor, has come clean and announced that it’s original source was none other than Bobby Lee, CEO of BTC China, the world’s largest Bitcoin exchange. In its report, it added that BTC China users have since reported a decrease in the number of funding and withdrawal options available on the site, with third-party payment services no longer available and attempts to fund an account on the site using Chinese bank accounts resulting in errors.

If China really has gone and curtailed third-party payment processors and its own banks from funding exchanges, that’s going to throw a huge spanner in the works for Chinese users, making it extremely difficult for them to buy and sell BTC for RMB. They can still own and trade Bitcoin legally, but the actual buying and selling would be limited to one-on-one exchanges on sites like LocalBitcoins.

For now, the situations remains fluid and could easily change. Zennon Kapron of financial advisory firm Kapronasia Shanghai, told Forbes magazine that its unclear how funding and withdrawing on Chinese bitcoin exchanges will work after the January 31 deadline reportedly given to third-party payment companies.

“What is also confusing is that the regulators have said that exchanges can exist, yet they are cutting off the means for exchange funding and withdrawing, so they are sending very mixed signals,” said Kapron. “I believe we will see some additional comments from regulators by the end of the year.”

If China really is cracking down on Bitcoin it’s not a huge surprise. The cryptocurrency makes it all too easy for Chinese to move their funds out of the country anonymously, and that’s something China’s government has never been too keen on allowing. Even so, China could come to regret its decision, says Adam Pasick at Quartz:

“By shunning bitcoin, China, home to innovative e-commerce companies like Alibaba and an underdeveloped consumer banking sector, may be passing up the chance to leapfrog the rest of the world by fostering the growth of bitcoin-esque digital currencies and the secure, efficient payments that they may enable,” wrote Pasick.

About Mike Wheatley

Mike loves to talk about Big Data, the Internet of Things, Hacktivists and hacking, but he also hates Google and can never resist having a quick dig at them should the opportunity arise :) Got a REAL news story or tip? Email Mike@SiliconANGLE.com.