On Monday, local newspaper The Beijing News reported, citing sources familiar with the matter, that the heads and top executives of bitcoin exchanges must stay in Beijing to comply with an investigation and are not allowed to leave the city.
The Wall Street Journal on Monday also reported, citing sources familiar with the matter, that Chinese regulators are planning a “broad clampdown” on bitcoin trading.
“My sense is they will eventually move to shut down the bitcoin mining operations,” Paul Triolo, practice head, geo-technology, at Eurasia Group, said. China dominates the bitcoin mining industry, which some estimate is worth billions of dollars.
The People’s Bank of China did not respond to an emailed request for comment early Wednesday morning Beijing time.
Chinese authorities have scrutinized bitcoin in the past.
In 2013, the People’s Bank of China banned the country’s banks from using bitcoin. Early this year, the central bank launched a probe into local bitcoin exchanges.
“Fundamentally it all comes back to control, and right now the party’s all about control, especially around the 19th” Communist Party Congress, said Bill Bishop, head of The Sinocism China Newsletter.
“If it’s a real policy it’s probably good for bitcoin because it removes the Chinese risk factor, same like the fork,” Bishop said, referring to bitcoin’s rally in August after an uneventful split into bitcoin and bitcoin cash.
Global bitcoin trade volume by currency
That said, Chinese authorities will not likely be able to easily stamp out a globally traded digital asset.
“I think that the crackdown won’t shut over-the-counter trading completely, though it will make it less convenient. Discussions of OTC trades are now moving to encrypted channels like Telegram to ensure the privacy of the parties. Because Telegram is blocked in China it requires VPNs to access, and not all traders here are familiar with the technology,” Denis Suslov, China-based blockchain consultant.
Like many financial institutions, the People’s Bank of China has publicly signaled support for the blockchain technology behind bitcoin.
“Behind the scenes the PBOC has been keeping very close track of the development of bitcoin,” Triolo said. Now “the cyrptocurrency problem has gotten exponentially more difficult for them to get their head around and regulate.”
“Definitely bitcoin and cryptocurrencies’ free [reign] is over. But the issue of how this will affect the blockchain industry is still unknown,” he said. “China doesn’t want to be left out of that. They’ll probably still end up allowing some parts of blockchain to survive. The financial piece of bitcoin and the blockchain industry is what they’re after.”