China Bans Financial Companies From Bitcoin Transactions

quantr writes with this excerpt from Bloomberg: "China's central bank barred financial institutions from handling Bitcoin transactions, moving to regulate the virtual currency after an 89-fold jump in its value sparked a surge of investor interest in the country. Bitcoin plunged more than 20 percent to below $1,000 on the BitStamp Internet exchange after the People's Bank of China said it isn't a currency with 'real meaning' and doesn't have the same legal status. The public is free to participate in Internet transactions provided they take on the risk themselves, it said. The ban reflects concern about the risk the digital currency may pose to China's capital controls and financial stability after a surge in trading this year made the country the world's biggest trader of Bitcoin, according to exchange operator BTC China. Bitcoin's price jumped more than ninefold in the past two months alone, prompting former Federal Reserve Chairman Alan Greenspan to call it a 'bubble.' 'The concern is that it interferes with normal monetary policy operation,' said Hao Hong, head of China research at Bocom International Holdings Co. in Hong Kong. 'It represents an unofficial leakage to the current monetary system and trades globally. It is difficult to regulate and could be used for money laundering.'"

Comments

The public is free to participate in Internet tran

[gl4ss]

"The public is free to participate in Internet transactions provided they take on the risk themselves,"

that should actually be a green sign.

any method that can be legally used to turn yuan into something else that can be turned into money - and can be moved electronically - is in big demand...

(no, I don't have any bc)

Went down, then came back.

[Saethan]

Yeah, btc took a momentary dive, and people jumped on it and it shot right back up above $1k. This all happened while I was asleep so *shrug*

Re: Went down, then came back.

[Sigg3.net]

Exactly. But that's true of any transaction-token regardless of expression; money, stocks, bitcoins, camels. (The last has other uses too.) Money is a technology.

You're failing to see what bitcoin is changing money-technology _into_.

Re:Went down, then came back.

[Anonymous Coward]

The US dollar is backed by the full faith and credit of the US government. Bitcoin is backed by absolutely no one.

Re:Went down, then came back.

[Alioth]

No, Bitcoin isn't "pegged" to any and all currencies, it's free-floating. Rather too free floating and volatile as the case may be.

The problem with Bitcoin isn't the absence of a central issuer, but right now the problem with Bitcoin is its extreme volatility. At the moment it's almost useless as a currency and it's being used as an instrument of speculation. It's far too volatile for any merchant (perhaps except the black market) to take seriously since it's value relative to all other currencies swings so wildly and so quickly and you have to convert BTC into your local currency to be able to use any funds transferred to you for the mundane things in life like buying food, electricity, housing etc. If I want to sell a thing worth about US$1200 in BTC, if I sold it at 9am today for 1BTC and waited a whole 15 minutes to convert this to USD, in the intervening 15 minutes I would have lost around $300 because of a wild swing in its value that happened over a period of just a couple of minutes.

Re:Went down, then came back.

[ArcadeMan]

The US dollar is backed by the credit of the US government? You mean the same US government that's neck-deep in debt right now?

Re:Went down, then came back.

[Joce640k]

The power of Bitcoin is often what people point to as its weakness - the fact that it isnt backed by any ~one~ conventional govt/issuer.

No, it's a weakness.

Any number of entities (governments, Columbian drug cartels, Russian Mafia, etc.) could have been quietly buying up bitcoins for the last six months and sitting on them. Lack of liquidity creates a seller's market so bitcoin prices skyrocket as a result. When the time is right they can dump all their coins on the market for a massive profit. The price of bitcoin will crash and they can buy back their stock at a fraction of the price just in case it ever recovers.

This trick only works if you can do it in secret (so people mistake the lack of liquidity for market confidence - nobody wants to sell!!)

Bitcoin is a perfect target for it.

Re:Went down, then came back.

[Em Adespoton]

The government collects taxes in USD. If you want to stay out of jail, you need USD.

Maybe YOUR government does... I'm pretty sure most governments don't.

And many multinational corporations use means other than USD to "pay" their taxes, and never see jail.

I think there's a lot of room for a global fiat quantum currency; for numerous international trade situations, it beats USD (and the yuan, which is pegged to USD).

Regulated like a commodity rather than currency

[JcMorin]

It's not banned at all, it's said that bitcoin can be freely buy and sell by the people but it's regulated like a commodity (gold, silver, oil) and there is no guarantee or protection from the standard financial institution. Bitcoin will actually benefit from a statement like that. Governments and Banks stay away from my bitcoin and leave the real free market work!

Re:Does it mean,

[Joce640k]

It means it's attracted the attention of the big players so they'll be the only ones making big profits from now on.

Anybody with enough capital can manipulate the bitcoin market (just like any other stock/share) - creating artificial shortages to drive the price up, dumping it into the hands of greedy individuals when it peaks, buying back when it crashes down. Rinse, repeat.

Re:COMMIES AT HEART !!

[ackthpt]

Fear the unknown !!

The reality is Bitcoin is stateless so China can't exert influence on it. Scares them, it does. Yes.

using BTC to buy yuan can drive yuan up...

[ananaMous]

... & they can't have that, now, can they? The push here seems to be to decouple the yuan in any big way from their own currency markets & see how that goes. As long as it means a low yuan, that might be fine by them. But then one yuanders: who really has the pretend currency?

Re:The public is free to participate in Internet t

[JcMorin]

Because other alt-coin are only copy/paste of Bitcoin, have no infrastructure and are less secure because they there is less miners. How many merchant accept Litecoin or Namecoin?

Sounds like a GOOD thing for Bitcoin

[gman003]

Bitcoin exists because many people don't trust a) the major world governments or b) the major banking institutions.

So it is a *good* thing for some of those banking institutions from being prohibited from using Bitcoins. And really, banks do not need to be dealing with Bitcoins - do you really want a bank to be taking your money and "investing" it in Bitcoin?

Classifying it as a commodity, like gold or silver, for regulatory purposes makes sense, and much like there are few regulations on gold and silver themselves, these are regulations on the banks, not on Bitcoins.

Now, the anti-money-laundering stuff may be a cumbersome burden on Bitcoin exchanges, and tries to defeat the entire purpose of Bitcoin's pseudonymity, but the US already has similar restrictions, and they're not restrictions that are completely unreasonable. In fact, wouldn't regulations on converting Bitcoins to and from other currencies make people more inclined to use Bitcoin as an actual currency, instead of just a carrier system for other currency (the buyer buying BTC to immediately spend, and the seller immediately converting it back to a "usable" currency)? Even their attempts to undermine it seem likely to strengthen it.