Bitcoin panic selling after China restricts exchanges

Bitcoin panic selling has sunk the virtual currency’s value to less than half its recent trading price after The People’s Bank of China, the country’s central bank, restricted Bitcoin trade.

Earlier this month China’s central bank told insurance companies, banks and other financial institutions that bitcoin-related business was forbidden, including deposits, custody services and collateral business.

The People’s Bank of China warns its citizens that if they buy and sell bitcoins they do so at their own risk. Chinese authorities added that they would require bitcoin exchanges to file trading records and take all necessary measures to prevent money-laundering.

BTC China, the world’s largest bitcoin exchange, accounting for 40% of global trading in the virtual currency, says local payment companies can no longer provide clearing services, i.e. it cannot accept yuan-based deposits any more.

Bank of China’s website attacked

According to the South China Morning Post, there are unconfirmed reports that the People’s Bank of China has been hit by a retaliatory denial-of-service attack after people reported having problems accessing the bank’s webpages. The newspaper added that the central bank could not be reached for comments.

The South China Morning Post quoted Bobby Lee, CEO of BTC China, who said “We essentially got notice from our third-party payment provider that they will discontinue accepting payments for us and new deposits. We’re still operating a bitcoin exchange in China, legally, and we’re still allowing people to deposit and withdraw bitcoin and withdraw renminbi (yuan).”

Bitcoin panic selling pushed the currency to $421 per unit this morning in China, compared to $1,250 at the end of November. MtGox, based in Japan, reported a low of $480 today.

Bitcoin panic selling set to spread

Bitcoin panic selling was evident on the Chinese mainland, with investors rushing to sell their rapidly depreciating virtual currency. Local media quoted discounts of 70% as people tried to rid themselves of bitcoins.

After the People’s Bank of China announced the new measures, the government of Hong Kong re-emphasized its opposition to bitcoin and other virtual currencies.

Hong Kong’s Secretary for Financial Services and the Treasury, Chan Ka-keung, said:

“Bitcoin is not an electronic currency, nor is it an e-wallet. It is not qualified to become an electronic currency. Citizens should beware of it. It is not suitable to use bitcoin for settling payments.”

“The risk is very big, the government will continue to monitor its development and step up regulation if necessary.”

An e-wallet is a digital system that stores the user’s payment information.

Kashmir Hill wrote in Forbes today “This shows that a country can effectively kill Bitcoin within its borders. Bitcoin may be a stateless currency free of any country’s control, but it still needs an official nod from the powers that be to facilitate widespread use.”

Last week, the European Banking Authority (EBA) issued a public warning about trading, holding or buying virtual currencies in general. The EBA explained that consumers are not protected through regulation when they use bitcoins. The EBA said “there is no guarantee that currency values remain stable.”