A shadow has once again been cast over the Chinese Bitcoin industry, with the news that its biggest exchange, BTC China, has been prevented from taking cash deposits from the People’s Bank of China.

The news came from the horses’ mouth via Twitter:

“Dear users, Due to regulations, we have suspended CNY deposits from Bank of China. For further enquiries, pls email: support@btcchina.com,”

There was little impact on Bitcoin’s price, which currently hovers around $440 according to Bitcoinaverage.com, something that suggests large numbers of people are already resigned to the fact that China hates Bitcoin and may ultimately decide to ban it.

Essentially, the PBOC’s “reiteration” of its anti-Bitcoin stance means that there’s no easy way for customers to fund their accounts on Chinese Bitcoin exchanges, something that severely limits their ability to do business. The news prompted five of its biggest exchanges – BTC China, BTCTrade, OKCoin, Huobi and CHBTC – to issue a joint statement saying that “after deep reflection and discussion, [they have] decided to take action to promote positive development of Bitcoin”.

Exactly what kind of action they’ll take remains to be seen, but in the meantime all five have canceled plans to attend this month’s Global Bitcoin Summit in Beijing on May 10 – 11. In addition, a number of smaller Chinese exchanges have thrown in the towel completely. FXBTC is now asking its customers to withdraw all of their holidings (both RMB and Bitcoin) before it shuts down its website on May 10.

An unofficial ban on Bitcoin

The Chinese authorities’ attitude to Bitcoin remains somewhat vague. It’s clear enough that Beijing isn’t too keen Bitcoin, something we can probably put down to its decentralized nature – Bitcoin challenges the authority of China’s government as it has no way to control it, and that’s a big concern for its paranoid leaders.

Many think that China will eventually try to ban Bitcoin altogether, yet the PBOC has previously denied this. In a notice released last year that blocked third-party payment processors from funding Chinese exchanges, PBOC said Bitcoin could still be traded legally as a kind of “commodity”. Some interpreted this as PBOC effectively condoning Bitcoin, only for it to turn around now and stop financial institutions from dealing with Bitcoin businesses. In other words, China appears to be trying to make it impossible for its citizens to buy and sell Bitcoin, without going as far as making Bitcoin trading illegal.

This could be because China doesn’t really see Bitcoin as that much of a threat. While it doesn’t like Bitcoin, it’s only used by a tiny fraction of the country’s population, insufficient to warrant any significant changes to its banking laws. As Zhang Weiwu notes in his own analysis, “PBOC, in a serious tone, has delivered this message: ‘Yes, I take this tiny, tiny, tiny issue seriously”.

What next?

While the PBOC seems intent on making life nigh-on impossible for Bitcoin enthusiasts, there’s still a huge amount of interest in it. Chinese have poured massive amounts of money into Bitcoin. For example, a number of Chinese entrepreneurs have gotten into Bitcoin mining hardware, either selling or renting mining power for use by others. The new regulations don’t affect China’s mining industry, and so these will continue to make money so long as the demand for ASIC hardware keeps growing.

But as for those who wish to invest or actually adopt Bitcoin as a means of payment, life is going to be that much harder. It may well be that, as happened last time, people will be able to figure out a way to get around these latest regulations – and if so that could test the resolve of the PBOC and it’s ability to clamp down on Bitcoin activities within the country. After all, it remains to be seen if it’s actually possible to ban Bitcoin outright. So long as its permitted by the rest of the world, the optimistic view is that people will always find a way round whatever roadblocks are thrown in their way.

Then again, there’s an even more optimistic view that Bitcoin might be a whole lot better off without such a tangible Chinese input. The constant uncertainty has been the biggest single cause of its recent price volatility, which leads to negative press and scare stories that put people off from trying it.

With China forced out of Bitcoin, attention would once again be focused on the USA, where prominent retailers like Overstock and TigerDirect have recently begun accepting it, and where progressive ideas like ‘Bitcoin banks‘ are emerging that should encourage greater adoption. If and when that happens, China may be forced to take a second look, and reverse its hostile stance towards Bitcoin.

photo credits: Thomas Hawk via photopin cc; OpenClips via Pixabay.com;