China has sent the Bitcoin rollercoaster into dip mode. Its price dropped $200 overnight in response to news that China’s ban on real world use, announced earlier this month, is going to make it difficult to get money in and out of Bitcoin in the country. In a media grapevine that started with a report from Coindesk, Bloomberg reports that China Business News reports that Zhou Jinhuang, deputy director of payment clearance at the People’s Bank of China, told third party payment providers that they can no longer work with Bitcoin exchanges. That would put a huge bottleneck on getting one’s RMB into and out of the digital currency, rendering it useless there for most legitimate (and illegitimate uses).
The writing was on the wall when China made its pronouncement earlier this month about not wanting financial institutions dealing with Bitcoin. However, Bitcoin exchanges thought they might evade the ban because of a Chinese wall (heh) between their Bitcoin holdings and their clients’ real world dollars. The third-party-payment providers held the real world dollars and the exchanges held the Bitcoin, and the two were not mixed. If the news from the media grapevine is true, the Chinese government doesn’t buy that Bitcoin regulation workaround. Moving forward, that would mean that people in China could own and trade Bitcoin, but that they’ll only be able to buy and sell it for RMB on a small scale by meeting up with people for one-on-one exchanges.
BTC China, the world’s largest exchange over the last month, is still seeing the most trading in Bitcoin in the last 24 hours, but its market share has fallen considerably. Sources say that most exchanges in China are no longer accepting RMB deposits and only allowing users to make withdrawals, meaning they can only sell not buy Bitcoin.
“It is really difficult to tell how funding and withdrawing on exchanges will work after Chinese New Year [ed. note: January 31, 2014, a deadline reportedly given in closed door meetings between third-party payment companies and Chinese regulators],” says Zennon Kapron of financial advisory firm Kapronasia Shanghai. “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. I believe we will see some additional comments from regulators by the end of the year.”
The Chinese press say the crackdown was inspired by a Hong Kong Bitcoin exchange that went belly up taking its investors’ millions with it. Other analysts think it’s because China likes its tight controls on its currency and sees Bitcoin as a way for people to move their money out of RMB.
Either way, this shows that a country can effectively kill Bitcoin within its borders. Bitcoin may be a stateless currency free of any country’s control, but it still needs an official nod from the powers that be to facilitate widespread use.
It’s China’s loss, 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,” he writes.
China is still letting people play with Bitcoin in its country, but by cutting off ways to turn it into real money, it will turn it into the digital Monopoly money that skeptics scoff at. That said, the funny money is still worth over $600 USD.