JISHOU, HUNAN — Word has it that the People’s Bank of China — China’s central bank — will finally allow exchanges to allow users to once again withdraw Bitcoin and Litecoin, possibly next month.
Such withdrawals were halted in January as regulators examined the business practices of China’s major cryptocurrency exchanges. The supposed rationale was to limit fraud and criminal activity, but the basic reason was to stem a possible means of capital flight.
The ban did not affect withdrawals to Chinese bank accounts, however. It applied specifically only to Bitcoin and Litecoin, the gold and silver of the cryptocurrencies. Other crypto-coins, like Ether and Zcash, were not included in the ban, as I later discovered.
Anyway, as I’ve blogged earlier, the freeze on withdrawals closed off the principal method I used to transfer my monthly pay (in Chinese yuan) to my US bank account (in dollars). Bitcoin enabled me to move money quickly and cheaply. But since January, I’ve had to be more creative in transfers.
A larger result of the withdrawal ban was to depress the market price of Bitcoin in China, sometimes by as much as $200, compared to the prices at foreign exchanges like Coinbase or Bitstamp.
Chinese regulators have had a love-hate relationship with Bitcoin. China has become one of the world’s leading miners of Bitcoin, which has brought millions of foreign currency (indirectly) into the economy. Simply banning Bitcoin was never under consideration.
But, lack of any regulations led to runaway speculation in 2013, fueled by the exchanges’ waiving of trading fees, which pumped up the price of Bitcoin above $1,000. In December that year, the central bank stepped in and forbade Chinese banks from dealing directly with Bitcoin. That chilled the markets, and the value of Bitcoin dropped sharply in the following weeks.
But apparently some kind of informal understanding was reached, and trading on the Chinese exchanges resumed by mid-2014. Bitcoin prices stabilized, climbing steadily upward to top $1,000 again in January this year.
That’s when the regulators stepped in again. They launched “investigations” of the Bitcoin exchanges, requiring them to suspend Bitcoin and Litecoin withdrawals in the interim. They also required the exchanges to halt margin trading and the no-fee trading system.
A few of the smaller ones just closed up shop than deal with the regulations. The larger ones, such as BTCChina, Huobi and OKCoin, chose to cooperate with the government’s central bank, and begged their patron’s patience as new regulations were being worked out.
According to a report published in the Chinese financial paper, Caixin, regulators were especially concerned that the exchanges follow strict KYC (Know Your Customer) and AML (Anti-Money Laundering) guidelines, sharply curtail margin trading, and monitor customers’ trading behavior for large “exports” of funds into and out of Bitcoin and Litecoin.
The exchange operators will also be punished for their non-compliance of regulations which did not yet exist.
New rules are expected to be published early next month, and resumption of cryptocurrency withdrawals will follow soon after.