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Bitcoin price demonstrated a sharp drop on Friday after the central bank of China warned users of the threats associated with the investment in digital currency.
The value of bitcoin fell sharply on Friday, following a bull run started last month. The price fluctuation is explained by the government’s plans to impose stricter rules for bitcoin exchanges.
On January 5, the People’s Bank of China (PBOC) released two notices, which said that bitcoin is not a currency and that investors should be aware of all the risks that come with cryptocurrency trading. The notices provoked rumors that the government may tighten control over Chinese exchanges, which handle the majority of the world’s overall bitcoin trading volume.
Before issuing the statement, the bank met with representatives of main Chinese digital currency exchanges, including BTCC and OKCoin, to remind them of bitcoin risks and urged them “to carry out self-examination” to ensure everything complies with the law. The similar notice was released in 2013, when bitcoin growth induced China to tighten regulation of the digital currency.
In view of the recent price upturn, some believed that bitcoin could become a great option to avoid the capital controls in China. The central bank wants to expand its control over capital outflows and slow the depreciation of the national currency, which decreased by 7% against the US dollar last year.
CEO of BTCC, Bobby Lee, told Reuters that he had not received direct demand from the PBOC to check Chinese capital outflows. “No. Not as of yet… Nothing verbal or written to us,” he said.
Meantime, he noted it could be a few years yet before Chinese central bank regulates the digital currency, adding that there are still two or three years until bitcoin is regulated in China.
Samson Mow, BTCC’s chief operating officer, said the company regularly meets with the central bank to ensure it acts in accordance with the government’s regulations.
Star Xu, the founder and CEO of OKCoin, commented: “The industry can benefit from balanced, risk-based regulation and/or oversight, and we look forward to further constructive discussions with the regulators and industry participants.”
Huobi’s chief operating officer, Zhu Jiawei, told Reuters that Huobi plans to collaborate with other bitcoin companies to form an alliance and rules to self-govern the cryptourrency sector.
When asked if it is possible to purchase bitcoin with yuan and sell it abroad in exchange for a foreign currency, Lee said not many people are doing that because of the high price.
Digital currency is being sold at a premium in its value in yuan. Moreover, trading between the 100,000 yuan and the 1 million yuan range would affect bitcoin spot prices and transaction rates.
“For that range, you’re not going to be able to do it at a good rate. You’re going to lose 10% of your money. Maybe the individual household might buy 20,000 more dollars worth of bitcoin than their $50,000 (forex) quota, but that’s a drop in the bucket,” he said.