PBOC gets tougher on bitcoin

2018-01-05
China Daily

The nation’s top financial regulator has suggested that local governments encourage bitcoin miners to gradually reduce production of the cryptocurrency until finally quitting the business, a signal of an upgraded campaign to crack down on financial risks arising in the fast-developing fintech sector.

A senior official with the People’s Bank of China, the nation’s central bank, who declined to be named, told China Daily on Jan 4 that a notice had been sent recently to local governments, asking bitcoin mining companies to “orderly exit” the business.

The notice is issued by the Office of the Special Rectification Work Leadership Team for Internet Financial Risks, which was set up by the State Council in April 2016 with a leader from the central bank. The special team also regulates the country’s cryptocurrency business.

Some bitcoin miners told China Daily that they had received notices from local governments to limit electricity consumption, and some of them had already moved part of the mining business overseas, to some locations with relatively cheaper costs for land rental and electricity, such as Mongolia.

Fu Liyong, deputy head of the local financial regulatory office in Ningbo, Zhejiang province, said that the regulatory move may also need to be coordinated with local government departments managing industrial and information technology, as the measures would start by controlling bitcoin producers’ electricity consumption.

The move is an indication that the monetary authority will further tighten regulation on bitcoin, after it closed all bitcoin trading platforms in the country last year, amid concerns that the cryptocurrency may boost harmful speculation.

Bitcoin prices have been on a roller coaster recently. The price slumped from $14,951 on Dec 29 to $12,307 the following day, and it climbed back to $14,762 on Jan 4, according to Coindesk, a cryptocurrency news outlet.

“Price bubble exists for bitcoin, which needs no more discussion,” said an editorial in People’s Daily on Jan 3, calling it a “reappearance” of the Dutch “Tulip Bubble” of the 1630s.

The article called the hyped advantages of bitcoin－scarcity, high-liquidity, transparency and decentralization, “disguises” for speculation.

After closing cryptocurrency trading platforms, the top financial regulator will send licenses to fintech companies who are “qualified” to provide fintech business after investigation, according to some local financial officials.

“I think it will be an absolutely correct decision if the Chinese government indeed curbs bitcoin output with government regulation. It can efficiently eliminate the bubble in the blockchain-related financial market and provide a cleaner industry environment,” said Sam Lee, CEO of Blockchain Global Ltd, an Australia-headquartered blockchain technology commercialization and investment company.

In the mean time, it reflects the Chinese government’s determination to curb speculative behavior in the industry, added Lee, whose company is also running the blockchain-related consultancy company Blockshine in China.

According to Buybitcoin-Worldwide.com, a global bitcoin exchange platform, Chinese mining pools have dominated 70 percent of the bitcoin’s collective hash rate－the speed at which a computer finishes an operation in the bitcoin code. In other words, the higher hash rate means a higher chance to mine bitcoin.