UPDATE: CoinDesk can confirm that the source for our original piece on the PBOC ban was Bobby Lee, CEO of bitcoin exchange BTC China. Lee said he is now happy to go on the record.
Bitcoin dipped to its lowest price in a week, following yesterday’s reports that the People’s Bank of China had banned third-party payment firms from dealing with bitcoin exchanges.
Prices took a dive throughout the day, starting at around $876 on the CoinDesk Bitcoin Price Index in the early hours (GMT), and falling to as low as $645 later in the day. Prices briefly rallied up to $771 on the BPI, only to dip once again.
At its lowest point over the 24 hours, the virtual currency took a 22% loss.
Original reports of the ban came from a trusted source within China’s bitcoin community, who had spoken to a participant present at the meeting between third-party payment companies and the Bank itself.
Over the course of the day, Chinese news sites reportedly confirmed the claims with PayPal and Alipay (a subsidiary of the international trading company Alibaba). Alipay is said to deal with 65 financial institutions and have at least 700 million registered accounts.
TenPay, another third-party payment company, also reportedly confirmed the news to journalists. In China, third-party payment companies are licensed by the government-operated PBOC. TenPay received its licence back in May 2011.
At the time of writing, the price fluctuation in bitcoin hasn't yet matched that of 5th December, when the PBOC issued a statement warning financial institutions to steer clear of the currency.
Following that announcement, the currency lost $300 in a single morning on Mt. Gox. In turn, the Coindesk Price Index fell from $1,139 to $584 by that weekend.
History tells us that China's role in bitcoin is large enough to spook investors into selling. The Chinese Yuan has outpaced the USD volume-wise as a fiat pair with bitcoin. 46% of bitcoin-fiat trades are conducted in the Chinese Yuan, while 44% are conducted in US dollars.
Nevertheless, market watchers urged the market to stay calm. Jaron Lukasiewicz, CEO of New York-based bitcoin exchange Coinsetter said:
“This development will have a negative influence on bitcoin’s near-term price potential, but I would encourage investors to remember that speculation doesn’t drive reliable value in general."
"Bitcoin’s long term value will ultimately be derived through global usage as a payment network in less restrictive countries,” he added.
Funding and withdrawal options
Exchange users in China have reported a decrease in the number of funding and withdrawal options for BTC China.
The image below shows funding options, which still include banks but have been reduced to only one third-party provider, Yeepay:
The second image shows the withdrawing options available. There are only five remaining, and Yeepay is not included on the list:
Zennon Kapron, a financial technology analyst and consultant whose company Kapronasia operates out of Shanghai, said as recently as three days ago one that of his friends had been able to fund a BTC China account through China Merchants Bank. The money arrived within a few hours.
Today, however, transactions resulted in errors and could not be completed.
It seems that some existing relationships are continuing, said Kapron, but no new ones are allowed and third-party transfer options must close by the Chinese New Year (around the end of January on the Western calendar).
Kapron claimed third-party companies were likely the first warned by the authorities and that's why they were the first to exit the scene. Banks could possibly come next.
However, Kapron also noted that these new revelations have come from meetings with business operators, and an official statement has yet to be published on the People's Bank of China website.
Another source, who operates a bitcoin-related business in China, confirmed the funding and withdrawal options had been curtailed since the People's Bank meeting, and likened the situation to poker-playing websites in the US.
The source explained that users are free to access the sites and play as much 'poker' as they like, but US financial institutions have been barred from transferring funds to them, effectively banning Americans from playing poker online.
At its peak in early December 2013, BTC China listed bitcoin prices topping $1,250. The exchange traded 109,841 bitcoins in the week preceding 4th November, compared with Bitstamp’s 93,372 and Mt. Gox’s 76,673.
Given the nature of business and government in China, and particularly the current climate regarding digital currencies, several of CoinDesk's sources requested not to be identified by name.
Co-authored by Jon Southurst and Danny Bradbury