Exchange investigation in China drives bitcoin price down 18 percent

china-police

The price of bitcoin dropped as much as 18 percent in trading Wednesday as Chinese authorities announced they were launching spot checks on leading bitcoin exchanges within its borders.

China’s Central bank published an announcement that it will start carrying out site inspections on Chinese bitcoin exchanges Jan. 17. It intends to check whether the companies have correct licenses and have implemented anti-money laundering systems, as well as whether they are involved in market manipulation.

The spot checks follow meetings held by regulators with China’s biggest bitcoin exchanges BTCC, Huobi and OKCoin last week to discuss compliance with foreign exchange and anti-money laundering laws. CryptoCompare Chief Executive Officer and founder Charles Hayter told CNBC that the announcement was a “ratcheting of the rhetoric” from Chinese authorities.

“Instead of ‘we’re watching you,’ it’s now ‘we’re investigating you,'” he said. “The intentions of the Chinese state are clearer and it looks like they’re trying to bring the Chinese bitcoin exchanges to heel. Whether they are looking to make an example is yet to be seen.”

Hayter noted that, presuming the exchanges weren’t found to be in breach of local laws and shut down, the investigations could deliver positive impacts by bring more respectability to the industry as it matures. Although no violations of local laws have yet been discovered, the announcement drove fear into a market in which Chinese investors account for roughly around 90 percent of all bitcoin traded. Any adverse findings, including the potential shut down of some or all of China’s bitcoin exchanges, would severely restrict liquidity in the market.

The price of bitcoin hit a near record high of  $1,139.89 on Jan. 3, but a rise in the value of the Chinese yuan saw the price of bitcoin in U.S. dollars plunge to $887.47 Feb. 4 before finishing the day at $968.88.

In another rollercoaster day following this latest news out of China, bitcoin traded as low as $749.74. As of 10:45 p.m. Eastern, bitcoin had recovered slightly to trade at $771.20.

Image credit: Beijing Patrol/Wikimedia Commons/CC by 2.0