China looks set to impose strict regulations on bitcoin as the country’s central bank circulates new guidelines that would require exchanges to identify clients and adhere to banking regulations.
According to The Wall Street Journal, the draft regulations would require Chinese bitcoin exchanges to comply with current banking and anti-money-laundering laws that include the requirement to collect information to identify customers. In addition, the regulations would require exchanges to install systems for collecting and reporting suspicious trading activity.
The report notes that officials could still revise the guidelines, subject to feedback from key stakeholders including banks, the Chinese government and even the bitcoin exchanges themselves.
While the regulations themselves are still at a draft stage, the potential for regulatory certainty going forward should be a positive for bitcoin in China given the uncertainty unleashed when authorities launched probes into the Middle Kingdom’s largest bitcoin exchanges in January.
That investigation resulted in radical changes to the Chinese bitcoin market, including the introduction of a transaction fee of 0.2 percent on all buy and sell orders. That caused a 90 percent plunge in bitcoin transactions as the fee made automated arbitrage trading unprofitable.
The introduction of transaction fees didn’t go far enough to appease authorities, however. In February, the largest Chinese bitcoin exchanges suspended all withdrawals of the currency pending improved protections against money laundering and other illegal activity. Notably, the withdrawals were limited to bitcoin. Customers could still sell their bitcoin and withdraw their value in cash.
Markets, however, have been spooked by the proposed regulations, as well as the U.S. Securities and Exchange Commission’s decision to not give approval to the Winklevoss Bitcoin ETF. Over the weekend, the price of bitcoin headed south after hitting record highs.
Bitcoin is currently trading at $1,040.93, down from a peak of $1288.70 March 3. Still, the price is in a slight recovery after it dropped below $1,000 for the first time in 2017 to bottom out at $957.55 March 18.