How Will Recently Introduced PBOC Regulatory Measures Affect Bitcoin?

Chinese bitcoin trading platforms now face the risk of closure if they breach new PBOC (People’s Bank of China) regulations governing virtual currencies.  The PBOC inspection team has unveiled a series of restrictions imposed on bitcoin after a meeting with nine Beijing-based bitcoin trading platforms.

Chinese bitcoin trading platforms risk closure if they breach new controls on the virtual currency. Amongst the measures approved was the banning of platforms from margin trading, which has become a widespread practice allowing investors to buy bitcoin on credit and repay their loans with gains made on transactions.

Trading platforms have also been banned from money laundering and practices that violate foreign exchange or tax laws. Those that do, risk closure by regulatory authorities. The PBOC has taken immediate action having already sent inspection teams to several of the country’s major bitcoin trading platforms. As a result of these measures there has been significant volatility on the Bitcoin Price Index.

Given that the three main Chinese trading platforms, BTC China, Okcoin and Huobi account for around 98.4% of global trade in bitcoin, these regulations are going to impact bitcoin across the globe. BTC China, the world’s biggest bitcoin platform, saw daily trading volume rise to 28bn yuan in December ($4 billion), compared to around 1bn yuan three months earlier.

In further developments,  behind closed-door meetings between the PBOC and bitcoin exchanges resulted in two Chinese bitcoin exchanges, Huobi and OKCoin, suspending all bitcoin withdrawals. This was followed by announcements from other Chinese based bitcoin exchanges announcing withdrawal policies as part of a bid to tighten anti-money laundering (AML) policies.

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BitBays, BTC100, BTCTrade, CHBTC, HaoBTC and Yunbi have all enacted changes to their withdrawal capabilities which are less stringent than the bitcoin and litecoin withdrawals imposed by Huobi and OKCoin, which stopped their services for one month. Only CHBTC indicated it would also suspend bitcoin and litecoin withdrawals for this duration.

BTCTrade, BTC100 and HaoBTC exchanges said that bitcoin and litecoin withdrawals would only be delayed with no halt in services. Interestingly all yuan deposits and withdrawals would be unaffected with AML upgrades being the rationale for such decisions.

It remains to be seen how these measures affect the future trade and uptake on bitcoin exchanges but what is clear from the volumes being traded is that the motivation is purely speculation and the driver is FIAT currency. There is no doubt that blockchain technology which underpins bitcoin has a bright future but regulation was always a question mark in terms of the long-term viability of bitcoin. We will find out in the coming months just how much of an impact the measures instigated by the PBOC will indeed have on bitcoin.

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