Unconfirmed reports that China may soon implement new legal regulations to restrict domestic bitcoin exchange activities have fueled worldwide bitcoin price volatility.
Bloomberg is alleged to have published a report claiming that Chinese officials could soon prohibit domestic bitcoin exchanges from moving certain volumes of bitcoin and other digital currencies abroad. The alleged Bloomberg article is not available at this time on the publication’s official website, but was cited by China’s Sina news agency. According to the alleged Bloomberg article, Chinese officials are concerned that domestic bitcoin exchange users may be buying bitcoin on local exchanges and selling abroad, thereby circumventing China’s strict capital controls (e.g., annual limits on foreign currency exchange).
Whether reports about the new regulations turn out to be true or not, many traders are likely using the reports as an opportunity to capitalize on market panic. Bitcoin traders have relied on fake news about China in the past as a means of encouraging speculative market activity (e.g., in 2013, at the peak of bitcoin’s price climb, news that China would potentially ban the digital currency sparked steep bitcoin price declines). The day Bloomberg’s alleged report began circulating the internet, Bitcoin prices fluctuated violently between a high of USD $744 and a low of USD $677.
China continues to play a leading role in the bitcoin ecosystem, with Goldman Sachs reporting in 2015 that 80 percent of bitcoin volume is exchanged in and out of Chinese yuan (CNY). Since December 2013, the China Central Bank has prohibited domestic financial institutions from handling bitcoin transactions, however private parties can still legally hold and trade bitcoins in China. In June 2016, the National People’s Congress (NPC) of China published a draft civil law code that, if implemented, would provide a legal definition for “virtual property,” which some analysts believe to include digital currencies such as bitcoin.