Crackdown signals end of illegal exchanges

Bitcoins. [Photo/VCG]

Cryptocurrency had been channel to transfer personal assets overseas

China's crackdown on bitcoin exchanges is a sign that the top regulator no longer tolerates cryptocurrency trading in the country as it has fueled illegal fundraising and cross-border money laundering, experts told China Daily.

Two of China's bitcoin exchanges, Huobi and OKCoin, both announced on Saturday that they will halt all virtual currency trading by the end of October, after they "received the notice and guidance from the regulators" according to their websites.

The Beijing News reported on Monday that senior managers of these two exchanges were forbidden to leave Beijing, and are required by financial regulators to cooperate with further investigations.

It followed the announcement of BTCChina, one of the country's biggest bitcoin exchanges, saying it will close its trading platform by the end of this month.

Bitcoin rebounded by more than 8 percent to $3,974 in intraday trading on Monday, up about 30 percent from Friday's low-ebb of $2,972, as investors calmed after digesting the exchange closure news.

"It is unlikely that the cryptocurrency trading will re-commence in the short term, as the financial regulators have made this decision," said Deng Jianpeng, a professor at the Law School of Minzu University of China.

More detailed explanations are expected from the central bank and other relevant government departments that may clarify the boundaries of illegal trading, he said.

Without mature and special laws on bitcoin trading, the cryptocurrency's exchange was seen as a channel to transfer personal assets overseas, which is supposed to be under the supervision of the country's foreign exchange administration.

Speculative investment fueled bitcoin's surge to around $5,000 earlier this year, marking a five-fold increase since the end of 2016.

Du Yan, executive director of the Asia-Pacific Future Financial Research Institute, said that the regulators' crackdown is "reasonable and just in time" to cool down the irrational investment and prevent potential financial risks.

The regulatory cost, from illegal fundraising and cross-border money laundering emerging from bitcoin trading, is much higher than the innovation benefits from the cryptocurrency, pushing policymakers to make the decision, said Du.

So far, the Chinese regulator has yet to identify bitcoin and other digital assets as illegal currencies.

The crackdown, as Deng said, will not spark market panic as the investors have accepted these facts since the information has been released gradually by media and the exchanges since earlier this month.

The People's Bank of China, the central bank, ruled earlier this month that initial coin offerings are illegal, as it has become a tool to raise funds bypassing the traditional regulatory system.

The National Internet Finance Association of China also warned investors earlier that bitcoin and other "virtual currencies" lack a clear base for valuation, and have become tools for illegal fundraising, money laundering, drug dealing and smuggling.