The price of bitcoin fell by $300 this morning after China’s central bank warned financial institutions to steer clear of the digital currency.
According to the People’s Bank of China, it doesn’t consider bitcoin a threat to China’s financial system, but it does believe the digital currency carries significant risks.
“The concern is that it interferes with normal monetary policy operation,” Hao Hong, head of China research at Bocom International Holdings Co. in Hong Kong, told Bloomberg.
“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. I think the central bank is right to make this move,” he added.
While the central bank is telling the nation’s financial institutions not to deal with bitcoin, it said individuals are free to buy, sell and use the cryptocurrency, if they wish, but they must take on the risk themselves.
On a positive note, the bank didn’t ban trading platforms, such as BTC China, from dealing with bitcoin and other digital currencies, it merely said these companies have to register with authorities.
The trading platforms were also told that user anonymity is not permitted – the exchanges must receive identification documents from their customers. Plus, they must report any suspicious transactions to the authorities. The bank claims that this measure will “effectively prevent money laundering associated with bitcoin”.
Although the bank clearly stated that it would allow individuals to freely use bitcoin, the announcement has already caused a massive price drop on several exchanges, namely BTC China. In heavy volume trading earlier this morning bitcoin lost roughly 10% of its value in a matter of hours.
The opening price on BTC China was 7,005 CNY, but it quickly shed more than 10%, with the lowest bid coming in at 4,521 CNY. At the time of writing, the latest price on CoinDesk’s Bitcoin Price Index was $889.01, with a daily change of -22.5%, or $257.23.
The volume of transactions on BTC China spiked shortly after the bank’s statement was published at 07:45 GMT. At this time, the volume of trades was 225.71 BTC, increasing by a massive 2975% to 6940.85 BTC over the next 45 minutes.