Panic As Chinese Cryptocurrency Exchanges Announce Impending Trading Halt
On the afternoon of September 15, 2017, Huobi and OKCoin – China’s two largest bitcoin exchanges – received guidance from regulatory authorities. Thereafter, the exchanges posted statements on their respective websites to inform customers of resultant actions. Effective September 15, 2017, at 9:30 China Standard Time, both exchanges suspended new user registration and deposits. On September 30, the exchanges will notify users to wind down trading activities. For both platforms, digital currency trading will grind to a halt by October 31, 2017.
News of China’s latest crackdown spooked investors, causing bitcoin to plunge from an all-time high of $5,000. As of publication, bitcoin trades for approximately $3,700 per coin in the global markets. However, on Huobi, bitcoin hovers around just $3,000. On OKCoin, bitcoin fares only slightly better at about $3,060. Although there’s a terrific arbitrage opportunity, removing bitcoin from a Chinese exchange would prove difficult at this stage.
In their statements, Huobi and OKCoin explain that they will utilize video verification systems prior to any withdrawals, apparently in an effort to combat potential money laundering. Users must present identification (e.g., a passport) and proof of residence in order to process their transactions. Unfortunately, customers of Huobi and OKCoin might be forced to liquidate their cryptocurrency assets, as withdrawals will be made in renminbi – something that could trigger unwanted tax burdens. The exchanges neglected to mention whether users can choose to send bitcoins to external wallet addresses.
It is unclear whether either exchange implemented know your customer (KYC) protocols prior to this announcement, but in February 2017, the price of bitcoin dipped when the People’s Bank of China began scrutinizing the lackadaisical identity verification of digital currency exchanges. A withdrawal freeze, which lasted until the beginning of June, meant that customers could trade bitcoins, but were unable to remove their holdings from the Chinese exchanges.
The announcements by Huobi and OKCoin followed yesterday’s decision by BTCChina to cease trading by September 30, 2017. Over the last two weeks, Chinese authorities have stepped up their regulation of the digital asset economy. On September 4, the People’s Bank of China outlawed token offerings (ICOs), requiring companies to return funds to investors. The next day, the Securities and Futures Commission of Hong Kong (which functions as a special administrative region) separately announced that token offerings could be subject to securities laws. Chinese regulation has obviously made a tremendous impact on the global market. Although over-the-counter trading remains legal, squashing exchange-based trade might harm cryptocurrency adoption in China.
 The official notice signed by the Beijing city group in charge of overseeing internet finance risks was confirmed to Reuters by a source in the Chinese government.