Bitcoin has fallen to less than half the value it recently traded for, following reports of fresh action by Beijing to restrict trade in the virtual currency.
On Wednesday, the exchange, BTC China, announced that it could no longer take deposits in Chinese yuan. On the same day, the exchange’s third-party payment service, such as YeePay and TenPay, notified BTC China that it would stop accepting its customers’ deposits.
China is the largest Bitcoin market in the world, and prices fell as low as 2,551 yuan (£257) for one Bitcoin following the news. It had been trading as high as 4,136 yuan (£416) just hours before the announcement.
“A lot of people put Bitcoin’s rise over recent months to China where interest in it has gone through the roof,” said Emily Spaven, editor of digital currency news site CoinDesk told the BBC.
“People are getting frightened that with the new regulations the country could now drop out of the ecosystem. Going forward, it’s certainly not the end of Bitcoin, but people have been panic selling.”
BTC China’s CEO Bobby Lee said he’s not been offered an explanation for the service stoppage. However, he pointed to recent Chinese news reports saying local regulators had demanded local third-party payment processors refrain from offering services to Bitcoin exchanges, reports the PC World.
“We’ve suspended customer deposits. It is unfortunate but we apologise for that inconvenience. We think this is due to government regulation. We have to play by the rules of the government of China. It is what it is,” he said.
Bitcoin’s surge in value from $100 to $1,200 in just four months was believed to be a result of substantial Chinese investment in the currency, but, as was seen during a similar boom and bust in April, the currency is extremely volatile and is not backed up by any central bank.
The People’s Bank of China issued a statement saying Bitcoin is not a currency and therefore banks and other financial services are forbidden from dealing with it. The bank said it was part of an effort to protect the yuan’s legal standing, prevent money laundering and maintain stability, among other reasons.
BTC China is looking for new options to allow customers to make deposits. But because the company is geared for China, the exchange is only looking to allow exchanges in the Chinese yuan, Lee said.
One expert suggested the crackdown was the result of the Chinese government’s fears that locals were using it as a way to bypass currency controls in order to move their savings out of the country.
“China is trying to grow its domestic economy and rebalance it from an export and investment-based model to a consumer driven one over the next decade, and to do that the authorities want to keep as much yuan within the country as possible,” said Jinny Yan, an economist with Standard Chartered bank.
“They don’t want to curtail any innovation in the financial sector. However, at the moment any unexpected growth and development in channels that allow by-passing of capital controls will cause anxiety.”