Bitcoin Tumbles After China Central Bank Bans Financial Companies From Using Digital Currency

Tyler Durden's picture

As we said back in March, when Bitcoin's parabolic rise first started, it was only a matter of time before first one, then all central banks take on Bitcoin for the simple fact that it present too great a threat to the fiat system. Sure enough, on the chart below of BTC China it is quite clear just at what point overnight the People's Bank of China announced that Bitcoin is simply a virtual commodity and "isn't a currency with any real meaning" (paraphrasing Alan Greenspan), and that it officially bans financial companies from Bitcoin transactions.

However, the reason why Chinese Bitcoin didn't tumble all the way to zero is because the PBOC added a loophole that the public is free to participate in internet transactions provided they bear their own risks.

FT adds:

The Chinese regulators noted three main risks. First, they said Bitcoin was an unsafe investment because the amount in circulation is small and can be easily controlled by speculators, making it highly volatile.


Second, because it is a largely anonymous product with few controls on it, they said that Bitcoin makes money laundering easy and can be used to support terrorism.


Third, they said there was a risk that it could be used by criminal organisations, noting that Bitcoin had been used internationally for the purchase of drugs and weapons.


“We have clearly stipulated that at the present moment all financial institutions and payment institutions cannot develop any business related to Bitcoin,” the central bank said. The regulators said that any websites serving as platforms for Bitcoin transactions would have to provide detailed information about their users and report any suspicious activity.


The central bank said it would continue to monitor Bitcoin trends and risks, adding that it would also focus on educating the public. “We will guide people to correctly understand the concept of a currency as well as investment theory,” it said.

However, as noted, the ban was not outright, and the PBOC did allow an option for continuing the use of Bitcoin. That said, with increasingly more central banks rejecting BTC and outright warning about its usage, one can expect that the main draw of Bitcoin, its independence from the legacy fiat system, will be increasingly more scrutizinied until it too is institutionalized, or until the BIS creates its own Bitcoin slamdown trading desk.

The Chinese government stopped short of banning Bitcoin altogether, saying that as an online product people were free to buy and sell it at their own risk. But it highlighted many dangers associated with it, including money laundering and criminality. From a systemic perspective, it noted that the one saving grace was that the amount circulating in the economy was too limited to pose a real threat.


“Although there are people calling it a ‘currency’, it is not issued by the monetary authority, it does not possess the attributes of a currency such as legal repayment and enforcement abilities,” the central bank said in a statement explaining the notice.


“Judged by its nature, Bitcoin is one particular kind of a virtual product. It does not have the legal status of a currency, and it cannot and moreover should not be allowed to circulate in the market as a currency.”


About a third of global Bitcoin transactions have been taking place in China and BTCChina became the world’s biggest bitcoin exchange by trading volume last month.


No major financial institutions have yet been involved in the Bitcoin trade in China, but online vendors on ecommerce group Alibaba’s platforms have started using it, as has Baidu, the internet search engine leader.

So that's that. Next, we hope to provide shortly the latest monthly total gold import number by China, where the PBOC has yet to provide an update of its total holdings since 2009.

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Dear Infinity's picture

I actually thought the move was rational on the PBOC's part. At least they extol the virtue of not being a reckless gambler on their banking system. They will also be funding new "education camps" to inform the public just what a real currency is.... money by force!

China: General public have freedom to participate in Bitcoin trading as a commodity trading on the internet on condition they assume risk.

GetZeeGold's picture



I spent many wondrous years in the education camps as a young lad.


Too bad it didn't cost my parents a fortune.

gold-is-not-dead's picture

everyone can say whatever they want about btc, it'll stay the same... buhahahahahahaha...

gold-is-not-dead's picture

HAHAHAHAHAHAHA, oh banksters of china, i-ching masters, you never go full retard...

gold-is-not-dead's picture

When will people realize that their opinion about bitcoin doesn't matter at all...

gold-is-not-dead's picture

Ola, bankster, I just grabbed more....muhahahhahahh

Mad Mohel's picture

Your boyfriend fonestar is sleeping, so you're covering his shift?

gold-is-not-dead's picture

oh, now we're getting into the ad hominem field of corespodence... ok, I'm off now, until next bubble pop... 12th I think so far...


PP's picture

Most Chinese don't believe Bitcoin, numerous criticism on Chinese Web. only less than 500,000 people invest in. (compare to 1.3 billion population). about 80% are young guy who dream that one day become billionaire by investing bitcoins. no house wifes involved



Oracle of Kypseli's picture

Chinese people have been betting on grasshopper jumping. Why would you not expect them to bet on bitcoin?   

fonestar's picture



Rock On Roger's picture

It is about time you came to your senses.


Stack On

fonestar's picture

Sorry, I need to be careful using sarcasm (special kids and sharp objects).

fonestar's picture

....and since that time the deflationary tiger has doubled and tripled how many times (all of which I predicted)?

So you admit I was right then?  Here's another prediction for you that you can quote.  As Bitcoin spreads it will continue to increase in value and will cause a panic out of fiat currencies.  Nobody will be laughing or treat this as a joking issue as governments try unsuccessfully to crack down on a phantom blackhole that tears your world apart.

hedgeless_horseman's picture



....and since that time the deflationary tiger has doubled and tripled how many times (all of which I predicted)?

See, "Bitcoins go parabolic," in the equation.  It is right before, "Legislation by the government."

So you admit I was right then?

It is too early to tell who was right. 

fonestar's picture

Well I am still here, emboldened, proclaiming anarchy and chaos.

InTheLandOfTheBlind's picture

seriously?  you gonna play it that way?   i despise shills with the best of them, but really....  i had more hope for you hedge....  admitting someone is correct with in a certain context is not defeat, plus it is the right thing to do.... over the long run - you are correct, but you are also skirting the issue and seeming very evasive with your response....  give fonestar his pound of flesh for some of his predictions have been quite accurate... how he derived those predictions is another story... but being right is being right no matter how unfortunate it is

fiftybagger's picture

Okay, So you will tell us at what price you are/were wrong at?









Silver For The People

The Bitcoin Channel

dark pools of soros's picture

which is it HH?  You rant that it is the mark of the devil and part of the NWO and then on the other side ramp up the 'governments will crush it' banner


pick a side or just be total loony


hedgeless_horseman's picture



...on the other side...

Are not those two positions on the same side of the coin, if not for different reasons?

dark pools of soros's picture

if you are playing the loony hedge card sure..  got everything covered

Crash Overide's picture

Hey fone, do you know if Bitcoin is a CIA op or not? You heard anything like that?

PT's picture

Bit coin = Poster Child for BTFD.

Did Poseidon ever bounce like this?  Tulip bulbs?  South Seas?  etc etc.

How many times has bitcoin crashed and bounced now? 

EDIT:  I truly am ignorant in these matters so feel free to educate me.

Bitcoin theme song???:
I get knocked down, but I get up again.
You're never gonna keep me down...

fonestar's picture

Yes good call.  Perhaps Bitcoin is chumbawamba?

eclectic syncretist's picture

Meanwhile, in the world of real currencies, JPM bought another 238,900 ounces of gold yesterday at the CRIMEX.  This would more than double their current registered inventory. They also continue to buy silver, in sharp contrast to the constant selling they've been doing for the past couple of years or so.

But what's even more interesting is that HSBC was called to deliver 221,600 ounces, and they only have 80,257 ounces registered.  I wonder how that's going to work out for them?

fonestar's picture

"real currencies" mind control victim?

Crash Overide's picture

and haven't most of the banks repositioned on the long side of metals?

TeMpTeK's picture

And so it begins.... The attack on nerd money......Fonestar will still survive as he all his fellow bitcoinites can live on bitcoin need for cash exchanges, businesses who can accept btc..... PS..... Did u hear about the guy that stole 100 million in btc... You can watch the theft live here...

fonestar's picture

Yes, this time it's definitely "the end of Bitcoin".  For sure this time.  The other seventy-nine times were false alarms.

Itgoestoeleven's picture

Hi Fonestar,

Unfortunately Fiat will not go away. I am dead center middle class. About 53% of my production is taxed. Taxes need to be paid in fiat. To kill BC they only need to tax a little more. Unless, they collect taxes in the form of BC.  

TeMpTeK's picture

Not the end of btc ... But the end of the poor guy who got 100 million in btc stolen with no recourse or chance in hell to get them back..... But as far as youre concerned btc is still the greatest way to pay, save, invest? Just cross your fingers and hope crypto-nerd doesnt crack your thanks

fonestar's picture

I am crypto-nerd and I feel fine.  Thank-you.

Gene Parmesan's picture

Governments are powerless, right?

fonestar's picture

Yes, powerless.  A contraption that lives only in the minds of brainwashed individuals.

funthea's picture

Speaking of logic... why will/should  bitcoin be worth anything over other crypto currencies that are vertually just as viable. Early adoption is certainly worthy as an argument, just not as the only argument...


TheHound73's picture

The free-market will hash this out but it will be winner-take-all.  Merchants are not going to support 50 currencies with 50 pay buttons, 50 wallets and 50 exchange rates.  It will be troublesome enough for a merchant to support 1 crypto-currency and they will support the one with the largest customer base.  

Miners, who provide security to the network, will apply their computer power to most attractive currency.  The weak currencies will be and have been attacked.

These are self-reinforcing qualities.


funthea's picture

I don't know about winner take all. Silver and Gold coexisted as monetary units for some time, enjoying a reinforcing a symbiotic relationship, giving etification to one another.

fallout11's picture

Bitcoin is not a currency – and as long as it lacks the fundamental qualities that define a currency it will not be one.  It is, at best, a digital commodity much like World of Warcraft gold.
Currencies must:.....
1) Be a store of value.  That is, if I put some amount of value into it today that value should be reasonably stable over time.  Nothing that is fluctuating in purchasing power by +/- 5%, 10% or even 20% in a day can be said to have such a quality, irrespective of whether it is going up or down. BTC fails this test.

2) Be a medium of exchange.  In order to perform this function people must accept it in trade for other goods and services – real goods and services.  You need to be able to buy a gallon of gasoline, a basket of food, a car, a computer and similar with it.  The problem is that until it is a store of value it will not be a medium of exchange because the people who produce things would be insane to widely accept it when they cannot reasonably expect the value you give them to be constant for enough time for them to obtain more raw materials and similar with what you tendered to them. BTC currently fails this test.

3) Self-verifying, at least for reasonably-small transactions.  You should be able to know if the “coin” you intend to spend is valid (and not a counterfeit) by trivial examination. This is almost-impossible with digital currencies since one of the largest risks is that you can theoretically spend them more than once, but only the first such spend is valid.  A credit or debit card partially solves this problem via central clearing where serialization takes place.  A decentralized currency attempts to solve this by publication, but that requires a fair bit of time to insure that your “spend” is not duplicated.  For face-to-face transactions any sort of “online” requirement presents a material problem and for small but frequent transactions any sort of delay is unacceptable.  The credit card industry solved the “online” problem decades ago through the use of paper transaction imprints and receipts; there is no similar way to resolve that problem for purely digital currencies. BTC currently fails this test.

fiftybagger's picture

Blah blah blah.  All refuted dozens of times before:

Okay.  Enough with reasoning with the dull witted.  Maybe a 9 year old can reach them:

Designed to be scarce their worth alone
beats every record we've known
A SHA for each block that's how miners roll
and the blockchain goes on and on

'Toshi got this program penned
to solve the problem of double spends
Proof of work with all that hash
making us some digital cash
Miners stack to save our spends
share their answers with all their friends
Silicon brains write chains of blocks
while Keynes can't refrain from throwing rocks
So all you fools shorting 'toshi,
bugs and statists with your glasses rosey,
when the world finds out we can't inflate
You'll join this party fashionably late

Silver For The People

The Bitcoin Channel

fallout11's picture

Please refute any of my three points, which can be found in any ECON 101 textbook re: currencies, as fails to address any of the three I mentioned.

What I see here is 'psychology of previous investment' at work. I'm not blind to BTC's value as a tradeable commodity, which is exactly what it is today, what I am saying is it does not meet these fundamental criteria to be considered a fungible currency (aka "money"), at present. It may at some point in the future, but not now.

Luckhasit's picture

Don't leave out pigeon racing either!

TheHound73's picture

Father-in-law breeds racing pigeons, true story.  He accepts BTC.

Dewey Cheatum Howe's picture

Not surprising what the Chinese government did you people seem to forget there is precedent for virtual currency in China and the Communist regime there trying to outlaw it.

A trip down the memory hole from 2006.

BEIJING, Nov. 16 (Xinhua) -- China's central bank has threatened to step into a debate on a "virtual currency" issued by an Internet firm and bring it under government supervision.

    The currency is the Q-coin issued by Tencent, a leading Internet community operator, for the users of QQ, an on-line chat room that had 220 million users by March.

    It can be purchased with bank cards, telephone cards or QQ cards at an official price of one yuan (12.5 U.S. cents) and was originally intended to be used in buying on-line services providedby Tencent, including electronic greeting cards, cartoon portraits,chips in on-line QQ games and anti-virus software.

    But many people have begun paying Q-coins when trading among themselves and in buying commodities and services provided by other websites.

    The operators of some Internet forums reportedly receive Q-coins as their wages.

    There have been reports that some people earned thousands of yuan per month by selling Q-coins won in on-line QQ games, where 10,000 points can be changed into one Q-coin.

    The People's Bank of China (PBOC) said it would closely monitor the "virtual money", amid concerns that it may impact China's currency if it was left uncontrolled.

    The bank would put the Q-coin, a kind of popular "virtual money", under supervision if it entered into circulation, sources with the PBOC told Xinhua.

    However, Yu Guofu, a counselor with the Internet Society of China, dismissed the fears, saying the Q-coin was only a commodity,not a real currency that can be converted into the yuan.

    It was worthless for people who were not QQ users, Yu argued.

    Li Chong, a professor of finance with the Beijing Normal University, even denied the Q-coin is "virtual money" because it is "neither a medium of exchange nor a store of value".

    However, legal expert Zhao Fujun argued that speculators who bought large amounts of Q-coins at a low price and resold at a profit had made the "virtual money" circulate like a hard currency.

    Tencent said it would crack down on illegal sales of Q-coins in conjunction with the police, according to a report in the Beijing News.

    Yang Tao, a legal scholar, pointed out that as China's legal tender, the yuan must be offered in payment of any debt and only the central bank could issue money.

    Conversion between the Q-coin and the yuan, if unchecked, would lead to dire economic consequences, warned Yang.

    "Virtual money" could disorder China's financial markets by taking the place of the legal tender as an "on-line medium of exchange", he said.

    As the Q-coin was issued by an enterprise, not the central bank,the supply was not subject to the country's monetary policy and could cause the policy to fail, said Yang.

    However, analysts believe the Q-coin is unlikely to enter into circulation because once it is made convertible with the yuan, Tencent would be exposed to great risks, especially if there is a malicious drawing.

    No company would run the risk just to become a "virtual central bank", said a commentary in the Shanghai Securities News.

    Yu said inflation occurred only when money supply exceeded the value of available goods and services, but "the supply of the Q-coin is based on the amount people purchase, which is unrelated to the country's financial system".

    The sales volume of "virtual money" are estimated at billions of yuan every year in China and growing at an annual average rate of 15 to 20 percent.


Apparently they were wrong about the virtual bank part aka the exchanges which in essence act as defacto banks commodity or currency as long as crypto-currency is convertable to Central Bank funny money. And to counter PP I would say Chinese people did very much so believe in virtual currency based on those numbers. And this was a good 7 years ago.