China Prepares To Impose Curbs, "Capital Controls" On Bitcoin

Tyler Durden's picture

Last September, when we predicted that Chinese consumers, investors and savers would flock to bitcoin as a medium of facilitating capital outflows (it was trading at $230 then, it is now three times higher), we also warned that bitcoin's upside would ultimately be capped by Beijing, when China's authorities realized how the digital currency was being used to bypass capital controls, and launch a crackdown on bitcoin, as they have with most other capital outflow measures .

It appears that the time has come because, as Bloomberg reports, China’s regulators are studying measures to limit transactions that use bitcoins to take funds out of the country, citing people familiar with the matter.

According to Bloomberg sources, Chinese officials are considering policies including restricting domestic bitcoin exchanges from moving the cryptocurrency to platforms outside the nation and imposing quotas on the amount of bitcoins that can be sent abroad. Further indicating that Chinese regulators were "just a little behind the curve", they allegedly noticed only recently that some investors bought bitcoins on local exchanges and sold them offshore, evading rules on foreign exchange and cross-border fund flows, the report further reveals.

A quick look at the uncanny correlation between the decline in the Yuan and the rise in the bitcoin, confirms that the digital currency has indeed been largely used to evade capital controls.

As we have repeatedly noted, and as BBG repeats, "Bitcoin has surged 21% since the end of September as the yuan’s declines accelerated, boosting speculation Chinese investors were buying the cryptocurrency as a hedge against further weakness. With the risk of quicker depreciation rising along with the odds of an impending U.S. interest-rate hike, policy makers are seeking to restrict outflow channels. Just a week ago, China limited the use of China UnionPay Co.’s cards to purchase insurance products in Hong Kong -- another way of taking cash out of the country."

In intraday trading, bitcoin erased a gain of as much of 2.6% overnight which had taken it to the highest level since June, before rebounding, although it now appears that news of the report is starting to spread. 

As a reminder, back in 2013, the government classified bitcoin as a commodity and not currency, placing it outside the purview of the foreign-exchange regulator, the people said.  That does not mean, however, that China is powerless at limiting bitcoin's upside.

Several Chinese government bodies including the People’s Bank of China and the financial regulators said in a joint notice that year that bitcoin functioned like a digital commodity without the legal status of a currency. The central bank said in January it is studying the prospects of issuing its own digital currency and aims to roll out a product as soon as possible.

While China dominates bitcoin mining and trading, the government has shown caution over its spread in the nation. In 2013, the PBOC barred financial institutions from handling bitcoin transactions.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Bill of Rights's picture

No news on this?

 

http://money.cnn.com/2016/11/02/investing/venezuela-debt-running-out-of-cash/index.html

 

Including a big bond payment due on Wednesday, Venezuela owes about $11 billion in bond payments between now and the end of next year. Besides that, it also owes billions more to China, foreign oil companies and many others.

And it's losing money fast. As of Monday, Venezuela only had $10.9 billion at its central bank, mostly held in gold bars, along with some assets held at the International Monetary Fund and some cash. At the beginning of last year, Venezuela had $24 billion in the bank.

Stackers's picture

Who was that MIT professor that said bitcoin would be at $10 now ?

TheVillageIdiot's picture

Currently he is the Minister of Finance for Venezuela

eclectic syncretist's picture

Bitcoin has a risk many don't sufficiently account for. Since it is often used for illegal activities governments can justify shutting it down at any time when one least expects it, and collapsing the price. Of course, this risk would be greatly magnified if there are people who would stand to benefit from a drop in the price. 

Draybin Deffercon III's picture
Draybin Deffercon III (not verified) eclectic syncretist Nov 3, 2016 11:23 AM

I love it when non-technical people comment on things like this. No sorry, "government" (which government? New York State? Bangladesh? The world government that doesn't exist?) can not just "turn off" the Internet on a whim..

"Yeah, hey Bob we got a problem with uh, this Bitcoin thing. It's ruining our state-controlled money. Can I get you to unplug that router. Thanks a bunch!"

eforce's picture

So users can't export via an exchange but they can just export to a private account and then export it.

Bunga Bunga's picture

Yes, Chinaman can cross the border naked with $$$ in his head.

wildbad's picture

...zackly
the gummint can dislike something, can even pass laws against some stuff.

people can also say , ah! thanks for the info..and keep trading under the radar.

the blockchain is freedom. got to apply that to democracy

auricle's picture

So how do you cash out your bitcoin if the government in your country has shut down the exchanges? 

Mustafa Kemal's picture

"governments can justify shutting it down at any time"

They sure can justify trying to shut it down

On the other hand the difficulty in doing just that is one of bitcoin's strengths, not its risks.

83_vf_1100_c's picture

Cash money has a risk many don't sufficiently account for. Since it is often used for illegal activities governments can justify shutting it down...

 

Buckaroo Banzai's picture

If it was going to be shut down, it would have happened already. Either it can't be done, or there are enough people in the ruling class who won't let it be done.

nomofiat's picture

This is indeed a FUD campaign to drive down the price and it is suceeding, for now.

this is a fun read

http://motherboard.vice.com/en_ca/read/us-federal-prosecutor-you-cant-sh...

kochevnik's picture

Actually all governments can do is hire mouthpieces as yourself to spread FUD and Bolshevist propaganda

Draybin Deffercon III's picture
Draybin Deffercon III (not verified) Stackers Nov 3, 2016 10:56 AM

The bit boy is back
And you know he can never be wack
The bit boy is back

https://localbitcoins.com

zyo's picture

Professor Mark T. Williams a former commodities trading floor senior executive and Fed
http://www.businessinsider.com/williams-bitcoin-meltdown-10-2013-12

Offthebeach's picture

Moar Venezuelan QE!

/krugman off

silverer's picture

Just go down with about 10 ounces of silver coins and you can have just about anything you want. Watch out for bad guys though, they're multiplying lately.

Draybin Deffercon III's picture
Draybin Deffercon III (not verified) Bill of Rights Nov 3, 2016 10:50 AM

OMG!! IT'S BITCOIN! SATOSHI WE LOVE$ YOU!

GreatUncle's picture

All focussed on the Clinton ... in a week or so everybody going to say I missed that ... and that ... and that ... oh yeah and that.

Draybin Deffercon III's picture
Draybin Deffercon III (not verified) Bill of Rights Nov 3, 2016 11:03 AM

If you love Wikileaks and what they have done to the DNC you can donate via Bitcoin. Sorry, they will not accept your silvers and g0ldcoin...

Raffie's picture

China going to 'CURB' or 'CLUB' bitcoin....?

AmandaFawndel's picture

but but but didn't Fone(sex)Star say....

Draybin Deffercon III's picture
Draybin Deffercon III (not verified) AmandaFawndel Nov 3, 2016 10:52 AM

F()n353x is here!

And yes I did "say" that Bitcoin would be banned! And fonestar supports the banning of Bitcoin. Bitcoin is a rebel's currency, not a statist's currency. And it will be hilarious when world governments lose to an online math puzzle.

If you are going to put words in someone's mouth make sure they are the right ones.

AmandaFawndel's picture

LOL@lalalalalalalalalalalalLOSERS&Liars

Draybin Deffercon III's picture
Draybin Deffercon III (not verified) AmandaFawndel Nov 3, 2016 11:04 AM

Did we stutter? What part was I "lying" about?

Mustafa Kemal's picture

"Did we stutter? What part was I "lying" about?"

No stutters or lies heard from you yet

GunnerySgtHartman's picture

Just like Michigan Senator John Dingell said about ObummerCare:  "We have to control the people."  The Chinese are in lockstep with him.

actionjacksonbrownie's picture

Wait... what??? I thought one of the main benefits of crypto was it's portability!

Draybin Deffercon III's picture
Draybin Deffercon III (not verified) actionjacksonbrownie Nov 3, 2016 10:53 AM

...and this interferes with its portability how? Also people in China routinely go around the great firewall of China.

TheVillageIdiot's picture

a la paypal where people use it in China as their bank account...

Draybin Deffercon III's picture
Draybin Deffercon III (not verified) TheVillageIdiot Nov 3, 2016 11:02 AM

The thing is that PayPal can be shut down and blocked on a government's whim. Just ask Julian Assange...

AmandaFawndel's picture

well that, and "THE GOVERNMENT CAN'T CONTROL IT"

 

FoneSex said so hisseff!

Draybin Deffercon III's picture
Draybin Deffercon III (not verified) AmandaFawndel Nov 3, 2016 11:10 AM

That's right. I did say that and I am still saying that, you shill.

seek's picture

It is. Whoever in China is proposing this lacks a fundamental understanding of how it works.

The only thing they can really do is shut down exchanges within China. Nothing else. There's no localization to bitcoin so there's no way to prevent it moving, since it was never anywhere in particular to begin with.

kochevnik's picture

Maths are portable to the competent, which excludes you

NaiLib's picture

Thing is. The assumption that BTC is used to take money out of China, is false. There is absolutely no corresponding volume of BTC outside of China that would imply this.

equili's picture

Exactly. Western exchanges should be flooded by bow with their BTC. Nothing so far. It just proves chinese volume is fake. Basic washtrade. 

NaiLib's picture

Its not fake. China is a lot bigger than US EU combined. Eventually volume will pick up elsewhere too. For the moment people are mislead by MSM that "Blockchain" is "the thing". BTC is the only Blockchain that actually work, and is globally public, NOT controlled by any CB or corporation. All "new" Blockchains will be FIAT Blockchains.

HRH of Aquitaine's picture
HRH of Aquitaine (not verified) Nov 3, 2016 10:42 AM

If China is successful at imposing capital controls on Bitcoin that will mean the end of Bitcoin. If China can limit the use of Bitcoin so can any other country.

Equinox's picture

The need to shutdown the indernet, and even then someone can send it via paperwallets. 

 

Offthebeach's picture

Hack commie crony party men fraid of bitty coin interweb thingy money!

Time for another offshore sandbar base!

Nick13_ro's picture

Problem is they simply cant. That's the entire idea of bitcoin. They can prevent the local exchanges from transfering their holdings outside China (and that one only by preventing them from getting paid in foreign currency) but any of their clients can do whatever they please with their bitcoins wherever in the world they see fit.

Draybin Deffercon III's picture
Draybin Deffercon III (not verified) HRH of Aquitaine Nov 3, 2016 10:55 AM

China will be unsuccessful at regulating Bitcoin. Nothing can stop Bitcoin. Bitcoin is invincible.

Mustafa Kemal's picture

DD, fellow bitnut, 

I think "Bitcoin is invincible." is going a bit too far. It does have some issues

TVP's picture

Up-voted you for the enthusiasm, but a few things about that: Bitcoin might be subject to the 51% attack, meaning if one entity can take control of 51% of the hashing power responsible for mining new coins, they can, in theory, control the market.  Yet this becomes more difficult as time goes on, seeing as mining difficulty rises exponentially.  

Other problem involves scaling.  The digital currency has grown so fast, the network becomes overloaded with transactions at times, increasing the amount of time to send coins and increasing the minimal fee associated with that.  Neither of these problems have so far deterred increased use of bitcoin - either as a store of value or medium of exchange.  Yes people buy more and more with it.  Buy useless crap on Overstock, book trips with Expedia, buy PMs on Jmbullion and others, use a btc-backed debit card at 32 million merchants.     

As long as entrepeneurs have freedom to solve these technological issues, they will be solved one way or another.  The real problem arises when .gov creates a three-letter acronym agency devoted to promoting regulation and stifling innovation under the guise of "protection".  Even the Bitlicense thing stopped dead all new bitcoin-related businesses in New York.  Even then, it's confined to a single state or nationstate.  People will move somewhere else.

And one last thing.  Bitcoin to the moon, bitchez.     

Draybin Deffercon III's picture
Draybin Deffercon III (not verified) TVP Nov 3, 2016 1:43 PM

No no no... this has been gone-over ad-nauseum now. Regarding the theoretical attack, it is not in a miner's financial self-interest to be a bad actor. Spamming or spoofing transactions, etc. The rebellion against such actions would be swift and severe by the tech-savvy blockchain users. Gigahash has gone to 51% or even over before.. no issues. And regarding scaling, it could in theory be an issue but you have to remember that Bitcoin is a living project like many other Online projects. Right now Bitcoin is more of a digital savings bond than a digital currency and that's fine for now. Even if you could purchase bubble gum at 7-11 with UST I doubt many people would do so. The transaction limit can be increased when there is consensus and when we want it. As for "three letter gov agencies" they are already badly behind the mark. And in a real sense, they are up against the most powerful distributed computing network and brilliant users in human history. They will lose.

PTR's picture

It will probably be as successful as those State contols over alcohol consumption. 

Mustafa Kemal's picture

"If China is successful at imposing capital controls on Bitcoin that will mean the end of Bitcoin."

IMO; it will indeed hurt it, but the end I doubt that.

"If China can limit the use of Bitcoin so can any other country."

True, but then they will have to do what china does.

I think that is the rub. 

 

On the other hand, 

If China is NOT successful at imposing capital controls on Bitcoin, as Ralph Cramdon used to say,  

to da moon alice