Bitcoin traders are once again fearful of a crackdown in one of the digital currency’s largest markets
Bitcoin prices retreated Wednesday following reports that China’s central bank is holding a closed-door meeting with several local cryptocurrency exchanges.
The news, first reported by Bloomberg, revived fears that authorities in one of bitcoin’s biggest markets are planning to crack down on the digital currency market, said Charles Hayter, founder and chief executive officer of CryptoCompare. Until recently, Chinese authorities had allowed bitcoin trading to flourish with relatively few restrictions.
Bitcoin US:BTCUSD dropped as much as 3% on Wednesday after the news broke. It was down 1% in recent trade, with one bitcoin trading at $1,051. On Tuesday, the world’s largest cryptocurrency by market capitalization traded above $1,1060, its highest level since Jan. 4, when bitcoin traded at $1,100, its highest level in more than three years.
Money laundering was one of the topics up for discussion at the meeting, according to the Bloomberg report.
News emerged late last year that Chinese authorities were exploring how to better monitor, and possibly restrict, digital-currency trading to prevent market manipulation and money laundering. In January, China’s largest bitcoin exchanges announced they had adopted new controls to ensure compliance with local rules in accordance with the wishes of authorities at the People’s Bank of China, the country’s central bank.
Chinese exchanges also adopted trading fees, leading to a dramatic reduction in local trading volume. Previously, Chinese exchanges had handled nearly 90% of bitcoin transactions thanks in part to their rock-bottom trading fees. U.S. exchanges, by comparison, have always required clients to pay a fee to trade.
The growth of the bitcoin market in China has been sharp, bitcoin experts say. Bitcoin miners based in China are responsible for generating more than two-thirds of the bitcoin network’s processing power. Bitcoin miners compete to process pending bitcoin transactions by rushing to solve complex cryptographic puzzles before others. Whoever is first to solve a puzzle blockchain, is rewarded with a cache of freshly minted bitcoins.
The price of a single bitcoin more than doubled in 2016. Bitcoin watchers said a sharp decline in the value of the Chinese yuan USDCNY, -0.0553% inspired some locals to invest in bitcoin to help preserve the value of their assets, or, as some believe, as a means of circumventing the country’s stringent capital controls.