China Reportedly Set to Ban Cryptocurrency Trades on Domestic Exchanges
The Chinese government appears set to take another step to crack down on bitcoin and other virtual currencies. Late last week, a Chinese publication announced the government plans to ban cryptocurrency trading on domestic exchanges. Reuters said a source with knowledge of the policy confirmed the plan is in the works.
This follows on the heels of last week’s People’s Bank of China announcement outlawing initial coin offerings (ICOs) and its order to halt of all related fundraising activity.
Officials say the ban on trading cryptocurrencies will only apply to exchanges and authorities don’t have plans to stop over-the-counter transactions. Bitcoin users can still trade cryptocurrencies without exchanges, but analysts told Bloomberg the process would likely be slower and come with increased credit risk.
Exchange operators in China still have not received official word on the ban. Arthur Hayes, chief executive of cryptocurrency trading platform BitMEX, told Reuters opinion was somewhat divided on the Caixin article.
“People are still waiting for official word from the regulator … I would assume that if China shuts down trading on continuous order books of the large exchanges, the price would drop below $4,000, or the price of the US dollar price of bitcoin would catch up to where it’s trading equivalently in China,”
Bitcoin slumped after Caixin magazine reported China’s plans. According to Bloomberg, China accounts for about 23% of bitcoin trades. Many of the biggest bitcoin miners also live in China.
Beijing-based FBG Capital invests in cryptocurrencies. Founding partner Zhou Shuoji said a Chinese crackdown would almost certainly impact the market.
Trading volume would definitely shrink. Old users will definitely still trade, but the entry threshold for new users is now very high. This will definitely slow the development of cryptocurrencies in China.”
But a China-based cryptocurrency investor, told Reuters he was doubtful that Chinese authorities could completely suppress cryptocurrency trading.
I think there is too much money to actually stop people from trading … The best they could do is ban exchanges but people will just use VPN or find another way.”
In what now looks eerily prophetic, before last week’s People’s Bank of China announcement outlawing ICO’s, emerging markets fund manager Mark Mobius warned that governments will begin clamping down on digital currencies because of their use in illicit financing, terrorism, and drug trafficking. He said that’s going to mean a rush back to gold.
Cryptocurrencies are beginning to get out of control and it’s going to attract the attention of governments around the world. You’re going to get a reversion back to gold because people are going to wonder, can I really trust these currencies?”
Increased government scrutiny could take some of the shine off cryptocurrencies. But as the Chinese investor said, their very nature makes them difficult to regulate and control. Governments can hinder trading by banning exchanges, but they can’t shut down the currencies themselves – not without turning off the internet. Nevertheless, the apparent bitcoin crackdown in China does raise a red flag.
Diversifying your cryptocurrency portfolio with precious metals can help mitigate some of the potential downside and put you in an overall stronger financial position.
Just consider the old adage – you don’t want to put all of your eggs in one basket.
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