China Cracks Down on Bitcoin

PBOC Orders Big Banks to Close Trading Accounts in Virtual Currency

Bobby Lee, chief executive of BTC China, said the central bank's move will have a 'negative impact' on the bitcoin exchange.

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China's central bank has ordered the country's commercial banks and payment companies to close bitcoin trading accounts in two weeks, according to people with knowledge of the matter, dealing another blow to the virtual currency.

Bitcoin prices are down roughly 8% since the new rules were first reported in financial publication Caixin last week. The rules affect more than a dozen bitcoin exchanges, and are a further tightening of regulations the central bank put in place last year. The accounts must be shut down by April 15, the people said.

Authorities have kept an eye on bitcoin's expansion here as it poses a potential threat to financial stability and because it has attracted swarms of speculative retail investors looking for ways to make quick profits. China imposes strict capital and currency controls, but bitcoin, in theory, offers its holders a way to bypass those rules. Chinese demand for bitcoin soared late last year, contributing to a rise in global prices and attracting the attention of regulators.

Regulators are also concerned about the safety of bitcoin exchanges following the collapse of Japan's Mt. Gox exchange after most of the bitcoins it was holding were stolen.

The latest move by the People's Bank of China is a huge blow to the country's bitcoin exchanges, which have found their footing in the more than three months since Chinese authorities appeared to take measures clamping down on the industry. In December, the PBOC ordered financial institutions to stop dealing with bitcoin. Later that month, it made clear that third-party payment processors could not help exchanges collect money from users.

The earlier moves left Chinese bitcoin exchanges with the ability to take direct deposits into corporate bank accounts. In the subsequent months, trading volumes and prices rebounded, as investor confidence returned, in part due to relief that the government had not ruled out bitcoin completely. Some in the bitcoin community said it was actually a positive that the government had said people are free to buy bitcoin.

Making it clear that domestic banks cannot provide clearing, account opening and other services for bitcoin exchanges, however, leaves exchanges with significantly less room to maneuver.

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"There will definitely be a negative impact to the exchanges," said Bobby Lee, chief executive of Shanghai-based BTC China, the most prominent Chinese exchange name abroad, having risen to briefly be the global leader by trading volume late last year. The latest move is a "stricter interpretation of the written rules" from the December statement, he added.

The exchange, he said, thought the December statement was "pretty relaxed" by comparison.

One of the people familiar with the latest directive said that the central bank does not intend to ban bitcoin trading in China, and said the move is to "enforce what was already said in the December document." That document had said bitcoin is not a currency with "real meaning" and does not have the same legal status as a currency, but that the public is free to buy and sell bitcoin online provided that they accept the risk.

BTC China and two other major bitcoin exchanges in China—OKCoin and Huobi—have all said they haven't gotten any official notice of a change from the central bank nor the banks that they have accounts with. A spokesman with BTC China said that the firm is trying to get clarity from the banks.

Bitcoin prices are down roughly 8% since it was reported that China's central bank ordered the country's commercial banks and payment companies to close bitcoin accounts.


The three exchanges also said they haven't seen significant changes to their deposits yet, and that trading volumes have jumped in the last week due to bitcoin price volatility from the news.

OKCoin CEO Xu Mingxing said that if Chinese exchanges can't accept money into corporate accounts, they would likely have to incorporate themselves abroad and also move their servers overseas. BTC China's Mr. Lee said one option would be for customers to use cash to make deposits directly with BTC China.

It "comes down to how it's going to be enforced...we're going to try different things," said Mr. Lee.

Left on their own, bitcoin exchanges have thrived in China, given strong local demand in a country that doesn't offer many investment outlets. Exchanges here also don't need special licenses to operate, compared with other parts of the world, such as the U.S., where exchanges need licenses as money-transfer businesses.

Shanghai bitcoin consultancy Kapronasia estimates that there are roughly two dozen exchanges operating in China looking to benefit from strong local demand in a country with tight currency and capital controls.

Timeline: Bitcoin's Evolution

Write to Chao Deng at and Lingling Wei at
