Bitcoin price took a huge fall on Friday after Caixin, a Chinese financial magazine, reported that Chinese Central Bank officials are working on rules to ban the trading of Bitcoin and all other cryptocurrencies on Chinese exchanges.
The decision will apply only to online trading and not to over-the-counter transactions. Owning Bitcoin and other virtual currencies would still be allowed, but users won’t be able to exchange it into fiat currency online.
The Central Bank has not issued an official statement on the matter, but Bloomberg and the Wall Street Journal verified Caixin’s report via their own sources.
Bitcoin fell 10%, from nearly $4,500 on Friday, to $4,100 on Monday. This is the second major Bitcoin price fall this past two weeks.
China previously banned ICOs
On September 4, China’s Central Bank banned ICOs (Initial Coin Offerings) citing that ICOs have “seriously disrupted the economic and financial order.”
ICOs are similar to IPOs. They allow companies to issue “tokens,” similar to shares. Online companies use ICOs to sell tokens that users by using virtual currencies. The company raises funds for their ventures while users gain a share of the profits in the future when the company will re-buy its tokens.
While governments around the world regulate and closely watch IPOs, ICOs are not regulated, and they have been used by many companies to raise funds without a guarantee that the token issuer will re-buy tokens and not run away with most of the funds.
Despite the concerns, ICOs have become the hottest thing in the world of virtual currencies and have helped companies raise billions of dollars.
When China banned ICOs, Bitcoin price took its first dive in many months, from nearly $4,900 – $5,000 to $4,500. The decision impacted trading prices for almost all virtual currencies.
Chinese financial officials said last year they plan to crack down on cryptocurrencies because Bitcoin and other virtual currencies were often used to finance terrorist groups and launder money out of the country. Officials said they don’t plan to shut down cryptocurrency trading, but merely regulate it.
China’s looming ban on virtual currency trading won’t affect the global market as exchanges based in other countries will continue to operate.
Many experts believe that Chinese officials accelerated this process over the summer as Bitcoin price grew from $3,000 to nearly $5,000, fueling market speculation by domestic investors, and driving Chinese Yuan value down as people started using Bitcoin to move funds in and out of the country, bypassing and disrupting traditional Chinese financial institutions.