China's Bitcoin clampdown drives away investors

Buyers are cashing out, and merchants disassociating themselves from the digital currency, after People's Bank of China extends ban to include third-party payment providers.
Written by Eileen Yu, Senior Contributing Editor

China's recent moves to clamp down on the use of Bitcoins have sent investors scurrying to cash out and merchants disassociating themselves from the digital currency. 

People's Bank of China earlier this week banned third-party payment providers from handling Bitcoin transactions and they must stop doing so by end-January 2014. The move comes just two weeks after the central bank ordered financial institutions to stay away from the virtual currency. 

The clampdown sent Bitcoin buyers scurrying to cash in on their haul before the Chinese government decides to implement an outright ban, according to a report on South China Morning Post (SCMP). It quoted Shanghai-based engineer Bai Jianzhong, who bought 20 Bitcoins in October for 30,000 yuan (US$4,905): "I sold all my Bitcoins and I withdrew all my cash. I was really worried the government would shut down Bitcoin. I was worried about my money, so I have no regrets in withdrawing."

Bai has little reason for regrets since he more than tripled his investment, cashing out his haul for 94,000 yuan (US$15,369). 

Shanghai-based financial consulting group, Kapronasia, noted a fall in the number of retailers on Chinese e-commerce website, Taobao, that accepted Bitcoins as payment. In the first two weeks of December, 14 out of 56 companies stopped transacting in the virtual currency, it said. 

Garage Cafe, a coffee shop located in the Beijing district of Haidian, also no longer recognized the currency as payment. "Since the government moved against Bitcoin payments, we thought it would be better to stop," the shop's spokesperson said.

SCMP also quoted Beijing-based software engineer Zhou Yunmin, who was planning to establish his own Bitcoin trading platform, but had since put the idea on hold following the regulatory ban. "It's a policy U-turn. I stopped preparing my startup immediately and decided to wait-and-see."

People's Bank of China last month had said it would not stop the use of Bitcoin among online users, though it said it had no plans to recognize the legitimacy of the currency.

In defending its decision later to outlaw Bitcoin among local banks and financial institutions, the central bank said the virtual currency was "limited" by its anonymity. It expressed concerns about the currency's lack of legal status as well as its small trading volume. It also highlighted the risks of a currency that had no price limit and its potential links to money laundering, due to the anonymity and lack of geographical restrictions.

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