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China’s central bank unveiled plans to more closely inspect operations of digital currency exchanges in an effort to curb the yuan’s outflow.
The value of digital currency decreased by about 10% today after The People’s Bank of China announced its plans to closely monitor domestic bitcoin exchanges.
The PBOC has posted on its website today that it met with three leading bitcoin exchanges in China, BTCC, Huobi and OKCoin, to investigate whether there is market manipulation, unauthorized financing, financial security risk, money laundering, or other issues.
Bitcoin dropped from about $910 level to the day’s low of around $785, following the announcement. The digital currency is currently traded at $801.02, according to Coinmarketcap.
The bank first met with the bitcoin exchanges on Friday and warned them of the risks associated with bitcoin investment. It mentioned that bitcoin is not a currency and thus cannot be used as a real currency.
The Chinese government has earlier unveiled its intention to stem capital outflows that brought its national currency reserves to their lowest since 2011.
Bitcoin has become an attractive option for investors to avoid government’s control and hedge against the yuan. While the renminbi lost nearly $7% against the US dollar, the digital currency reached its highest level since 2013. It had been steadily soaring in 2016 and achieved almost $1,100 on January 5, but subsequently plunged to the $900 mark.
As Reuters reported, The PBOC in Shanghai, which met with BTCC, focused on “whether the firm was operating out of its business scope, whether it was launching unauthorized financing, payment, forex business or other related businesses, whether it was involved in market manipulation, anti-money laundering or (carried) fund security risks.”
The PBOC in Beijing, which visited the offices of OKCoin and Huobi, said that “spot checks were focused on how the exchanges implement policies including forex management and anti-money laundering”.
Charles Hayter, CEO of cryptocurrency analytics company Cryptocompare, commented: “Selling is being driven by China. The fear is that … this investigation could lead to, worse-case scenario, funds being withheld from them (Chinese investors) or one of the exchanges being found to have acted improperly.”
“This is a ratcheting up of the rhetoric from the Chinese authorities – instead of ‘we’re watching’ you, it’s now ‘we’re investigating’ you.”
Hayter said that over the last six months, trading between yuan and bitcoin made up 98% of the overall market. “The long term implications of this are positive as more rigor in the Chinese market only matures and brings respectability to the industry – but in the short term this could effect volumes which have been one of the key drivers of the recent rally,” he added.