Amid a speculative frenzy in bitcoins, Chinese regulators warned Thursday of risks involving the digital currency and ordered financial institutions not to trade in the cyber unit. Meanwhile, they urged bitcoin exchanges and service providers to know their customers well in order to curb untoward transactions.
In a statement issued jointly with the Ministry of Industry and Information Technology, the China Banking Regulatory Commission, the China Securities Regulatory Commission, and the China Insurance Regulatory Commission, the People’s Bank of China (PBoC) urged bitcoin bourses to report any suspicious deals to help prevent money laundering through the peer-to-peer cryptocurrency.
Bitcoin trading platforms should follow the nation’s rules to keep proper records and convey necessary information to the telecoms regulator, the statement said. Bitcoin has a higher risk of being used by criminals for money laundering, it said.
Bitcoin is a not legalized currency and does not serve the purpose of a monetary unit, the central bank said in the statement. It is a virtual commodity and should not be used in the market as a currency, it said. People who use bitcoin in online transactions have to bear their own risks, the PBoC warned.
Financial institutions are not allowed to use bitcoin in pricing or trading, the central bank said, adding that it should not be used in offering insurance, registration, trading, and settlement and clearance services for customers. The institutions should not issue bitcoin-related financial products, it said.
After the joint statement, bitcoin prices slumped 35 percent to 4,520 yuan (US$737) from 6,970 yuan within an hour, according to mainland media.
Tighter rules will hurt the value and trading volume of bitcoins in China, which is currently the largest country in terms of trading volume, over the medium term, observers say. Some investors may lose interest in speculating in bitcoins due to concerns that Beijing may unveil more curbs, which will further add pressure to the so-called digital currency.
However, it may take some time for the bubble to burst. When more real cash is drawn into the pool and the price is attractive enough, the supply of bitcoins in the market will jump, posing risks to the system, observers say.
Believing that bitcoin has a limited ultimate supply of 21 million units may be an over-optimistic view. It is unclear who is holding the 12 million bitcoins mined earlier and whether the creator has a decryption key to make more bitcoins.
China, India demand seen supporting gold prices
Robust consumption in China and India will support gold prices despite falling global demand, the Securities Times reported Thursday, citing the World Gold Council (WGC). World demand for the yellow metal fell 56 percent in the third quarter and prices have been falling in recent months, Albert Cheng, managing director of WGC Far East, was quoted as saying. Gold consumption in China alone is expected to top 1,000 tons this year. A shortfall of 700 tons is expected despite domestic production of 400 tons.
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