China plans to ban trading of bitcoin and other virtual currencies on domestic exchanges, after banning initial coin offerings last week (See: China bans ICOs in crackdown on cryptocurrency ).
The ban will only hit cryptocurrency trading on exchanges, according to people familiar with the matter, who requested anonymity as the information is private, Bloomberg reported. Authorities do not plan to stop over-the-counter transactions, according to the people.
Bitcoin fell Friday after reports of China's plans in Caixin magazine. China accounts for about 23 per cent of bitcoin trades and is also home to many of the world's biggest bitcoin miners, who confirm transactions in the digital currency.
''Trading volume would definitely shrink,'' said Zhou Shuoji, Beijing-based founding partner at FBG Capital, which invests in cryptocurrencies, Bloomberg reported. ''Old users will definitely still trade, but the entry threshold for new users is now very high. This will definitely slow the development of cryptocurrencies in China.''
While Beijing's motivation for the exchange ban was not clear, according to commentators, it comes as China launches a broad clampdown on financial risk in the run-up to a key Communist Party leadership reshuffle next month. Bitcoin has shot up around 600 per cent in dollar terms over the past year, which has stoked fears of a bubble.
China's largest bitcoin exchanges are still awaiting clarification from the government following more media reports that Beijing is planning to ban trading of virtual currencies on domestic exchanges, but markets were largely subdued on Monday.
''People are still waiting for official word from the regulator,'' said Arthur Hayes, chief executive of crypto-currency trading platform BitMEX, Reuters reported. He added the modest fall in the bitcoin price illustrated how opinion in the community towards the Caixin article was divided.
''I would assume that if China shuts down trading on continuous order books of the large exchanges, the price would drop below $4,000, or the price of the US dollar price of bitcoin would catch up to where it's trading equivalently in China,'' he said.