China’s central bank, The People's Bank of China (PBOC), released a statement today that detailed the official warning they issued to nine Chinese startups in a meeting yesterday. The warning was aimed at major bitcoin exchanges, urging them to make sure they’re in compliance with relevant laws and regulations. This comes after the PBOC had issued guidance in early January to BTCC, Huobi, and OKCoin (China’s biggest bitcoin exchanges), in regard to their zero-fee trading. All three have since added trading fees as of January 24th.
Exchanges Warned To Comply With Regulations
The latest PBOC statement warned exchanges that they must be in compliance with anti-money laundering (AML) practices or risk being shut down in accordance with the law. After this latest directive, two of China’s most popular bitcoin exchanges, Huobi and OKCoin, have suspended bitcoin and litecoin withdrawals. BTCTrade, another exchange, released a statement that laid out their plans to address KYC (Know Your Customer)/AML concerns as well. The PBOC’s recent statement, as translated by Google translate, reads:
“Following the early January on the [‘Huobi’] and [‘OKCoin’] two major [bitcoin] currency trading platform to carry out inspection, the afternoon of February 8, the People's Bank business management department inspection team also engaged in other bitcoin currency [exchanges CHBTC, BTCTrade, HaoBTC, Yunbi, BTC100, Yuanbao, Jubi, BitBays, Dahonghuo]…The main person in charge of Bitcoin trading platform to inform the current Bitcoin trading platform problems, suggesting the trading platform may exist legal risks, policy risks and technical risks, understand the operation of the nine trading platform, and put forward specific requirements Shall not violate the state's laws and regulations on anti-money laundering, foreign exchange administration, payment and settlement, etc., and shall not violate the laws of the State on taxation and administration of industry and commerce advertisements, etc. If there is a Bitcoin trading platform in violation of the above requirements, the circumstances are serious, the inspection team will be brought to the relevant departments to be closed down according to law.”
Exchanges Suspend Bitcoin Withdrawals
The suspension is scheduled to last for a month as the exchanges upgrade their KYC/AML compliance systems. That means that anyone holding bitcoin or litecoin at OKCoin or Huobi is currently unable to access their funds. Regarding OKCoin specifically, only the OKCoin.cn portal is affected. Both OKCoin and Huobi released very similar statements (in Chinese), saying that even though they believe the upgrades could take a month, it was necessary to suspend withdrawals “in order to avoid illegal transactions that may continue before the completion of the system upgrade.”
While this is all being done in the name of stopping money laundering and market manipulation, it’s riding on the heels of the PBOC’s crackdown on bitcoin. Capital flight, the transferring of Chinese money out of their economy, is a big issue in China. As the yuan depreciates, Chinese citizens are moving their money to virtual currencies to protect the value of their wealth. This recent move from the PBOC would certainly help to slow that down.
Bitcoin Price Crashes
Since the announcement, the price of bitcoin has been crashing. After reaching a recent high-point in January when bitcoin was trading around $1,100 per bitcoin, the price is now closer to $960. This has caused a ripple effect, and the price of Ether has already fallen from trading upwards of $11.50 to around an average of $10.87 at the time of this publication.
An entire month of suspended trading on those two platforms could seriously affect the markets. The question is: which way will Ether swing? As the price of bitcoin rises and falls, it often takes the virtual currency markets with it. Seeing as how Ether is the number two virtual currency by market cap, it could stand to see an influx of new users. Time will tell if the price of Ether falls with bitcoin or is boosted to new heights.
The ongoing situation speaks to the bigger problem of centralization. With China hosting some of the largest exchanges, Chinese investors buying up large amounts of bitcoins, and Chinese mining farms controlling a fair amount of the network’s hashpower, bitcoin itself is left vulnerable to the whims of Chinese regulators.