Chinese Regulators Crack Down on Bitcoin Exchanges

Chinese Regulators Crack Down on Bitcoin Exchanges

Sep 18, 2017

Chinese regulators issued closure notices to bitcoin and cryptocurrency exchanges last week, informing them that they must voluntarily shut down.

On September 14, Chinese bitcoin exchanges began to publish abrupt announcements that they would shutter their order-book exchanges by the end of the month. BTCC, the world’s longest-running bitcoin exchange, was the first to announce its closure, citing the September 5 ruling by the People’s Bank of China (PBoC) that initial coin offerings (ICOs) were illegal.

As reported by CoinDesk, leaked documents revealed that the office of the Leading Group of Beijing Internet Financial Risks Remediation had told exchanges they must voluntarily shut down user registrations and yuan deposits immediately and suspend trading by the end of the month. The justification for the closures was that they were operating without valid licenses. However, Haipo Yang–CEO of Chinese bitcoin exchange ViaBTC, opined on Twitter that the government cracked down on exchanges because “they feel the threats from bitcoin.”

The crypto markets had been in turmoil since the ICO ban, as traders waited to see whether the PBoC would move against cryptocurrency exchanges next. Although cryptocurrencies can be traded over the counter, order-book exchanges provide liquidity and serve as an on/off ramp from cryptocurrency to fiat. Chinese exchanges account for about 10-15% of cryptocurrency trading volume, so although their closure would not devastate the global markets, the move would have a significant impact on their short-term trajectories.

Consequently, the markets went into free-fall following the BTCC announcement, with the bitcoin price plunging below $3,000 as more exchanges began to announce that they would suspend trading by the end of the month.

Then, OKCoin and Huobi–the two highest volume Chinese bitcoin exchanges–issued twin statements that indicated they would phase out yuan trading pairs by the end of October. Notably, these statements differed from the others in that they did not say they would suspend “all trading,” leading to speculation that regulators will allow OKCoin and Huobi to continue to provide cryptocurrency-to-cryptocurrency trading and potentially grant them licensure in the coming weeks.

This news confirmed an earlier report by Chinese media service Caixin, which indicated that regulators would extend favorable treatment to the two exchanges since they had so many active users and had not listed trading pairs for ICO tokens.

Immediately, the markets began to rally, adding nearly $25 billion to the crypto market cap–the combined value of all cryptocurrencies. The bitcoin price rose as high as $3,800 during the upswing, although it had tapered to $3,600 leading into the weekend.

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