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China Tells Bitcoin Exchanges to Follow Forex Rules
Central bank threatens shutdowns if regulations aren’t adhered to
By CHAO DENG
Updated Feb. 9, 2017 2:38 a.m. ET
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SHANGHAI—China’s central bank issued its harshest warning yet to the domestic bitcoin industry, saying that platforms trading the virtual currency risk being shut down if they skirt rules on money laundering and foreign exchange.
The People’s Bank of China delivered the warning to nine bitcoin trading platforms in a meeting on Wednesday, reminding them about potential legal, policy and other risks. Central-bank officials told the exchanges not to violate regulations on money laundering, foreign-exchange management, payment and other issues, according to a statement from the Beijing-based operations office of the central bank issued on Thursday.
Should such a violation be found, the central bank said, “the circumstance will be serious” and an inspection team will close down the offending exchange.
The rhetoric marks an escalation following weeks of sparring between the central bank and the exchanges over risks associated with their businesses. Among the concerns is whether the virtual currency’s largest market is becoming a venue for overly risky speculation and capital flight.
“People in the industry are watching if the regulators do more,” said Wen Hao, founder of Bitpie, a Beijing-based bitcoin-related business, who was not part of the meeting. “They’ve never said they would close a business. Based on that statement, they are getting more strict.”
Representatives for the nine, mostly smaller platforms involved in Wednesday’s meeting either couldn’t be reached or declined to comment.
Moves to further rein in the exchanges show just how much the Chinese authorities have hardened their views on the industry this year. Demand in China for the virtual currency has been rising in recent months, fueled by the Chinese yuan’s depreciation, and that has heightened regulators’ concern that bitcoin may help Chinese move money across the borders, circumventing capital controls.
Traders have said that bitcoin doesn’t aid capital flight. Only about $2 billion worth of bitcoin purchased last year is estimated to have left China, a trickle in overall capital flows, estimates Chainalysis, a New York startup that tracks the movement of bitcoin. Bitcoin’s technology, though, allows the currency to move across borders, outside banking channels via the so-called blockchain network, and be deposited on an exchange where it then can be converted into a foreign fiat currency.
Bitcoin prices climbed over the recent Lunar New Year holiday and earlier this week reached as high $1,067 per bitcoin, according to the CoinDesk’s bitcoin prices index. The index put the price at about $1,065 midday Thursday in China.
As bitcoin prices staged their recent run-up, China’s foreign-exchange reserves fell below $3 trillion, their lowest level in six years. Authorities have been redoubling efforts to plug the channels allowing money to leak out, chiefly by tightening rules on individual bank transfers and corporate acquisitions.
The exchanges called to meet with central bank officials on Wednesday included BtcTrade.com, HaoBTC, Yunbi, Yuanbao.com, and BTC100. Excluded from the meeting were China’s three largest bitcoin trading platforms by volume which have been under inspection by the central bank since January.
The central bank previously said that two of them, Huobi and OKCoin, didn’t institute proper controls to prevent money-laundering while the third, BTCC, was in violation of rules by providing capital services. These exchanges have in response imposed trading fees and canceled margin trading, or trading with borrowed money, to cool speculation.
Bobby Lee, the CEO of Shanghai-based BTCC, said this week that the exchanges are waiting for further regulations; central bank officials went to BTCC last weekend for meeting. Mr. Lee said that the latest moves are more “scare tactics.”
Beyond the exchanges, the central bank has yet to call into question related bitcoin businesses, from providing “wallets”—the applications that manage storage of bitcoin—to the creation, or “mining” of bitcoin via computer processes.
Still, the recent announcement means that bitcoin exchanges will be under pressure to look more closely at who their customers are and where their money comes from, said Mr. Hao of Bitpie, which makes bitcoin wallets. “As with any finance-related business, authorities would be worried more about anti-money-laundering.”
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