China is beginning what may be a wider crackdown on Bitcoin as it begins investigating cryptocurrency exchanges.
On Wednesday the People's Bank of China said it had begun inspecting some of the country's major Bitcoin trading platforms in Beijing and Shanghai, citing foreign currency exchange, market manipulation, money laundering and financial security risks.
The news caused the price of Bitcoin to fall by 16 per cent overnight on the Bitcoin Price Index, an average of the major exchanges, rounding off a bad few days for the currency. In all, the price has dropped by over 30 per cent over the past week.
Approximately 90 per cent of all Bitcoin transactions originate in China, with the country home to 70 per cent of all bitcoin miners: organisations and individuals who donate computing power to verify transactions in return for a fee.
Bitcoin has become an alternative to gold as a refuge for investors in times of global economic uncertainty. During 2016 its value against the dollar more than doubled, peaking at more than US $1,100 in the New Year, helped by the election of Donald Trump, India's removal from circulation of low denomination banknotes and China's currency devaluations.
Bitcoin allows people to move their money around semi-anonymously, allowing people to breach China's strict rules about currency exports; therefore a crackdown by the authorities has been widely predicted.
Trading on the financial markets is a hugely popular past-time in China where the renminbi cannot be exchanged for hard currency and a recent fall in the price of that currency has lead to an exodus of capital from the country. The value of the renminbi fell by seven per cent over 2016, increasing the appeal of Bitcoin, and contributing to its rise.
Gil Luria, an analyst at Wedbush Securities said that Bitcoin's value is largely in China's hands.
"China giveth and China taketh away," he told Bloomberg. "The rally in bitcoin over the preceding few weeks was likely driven by Chinese capital flight and speculation, which is why concerns about China taking a firmer stance against the use of bitcoin is likely putting pressure on the price."
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