For those who seek to trade or do business with Bitcoin in China, Chinese officials are a nightmare.
First thing’s first: It is not explicitly illegal to own Bitcoin in China. Financial companies have certain restrictions on their ability to transact or process Bitcoin payments, and this has had a chilling effect on the local Bitcoin economy, but at the time of writing there are no laws that say a Chinese citizen is forbidden from owning Bitcoin.
It’s those chilling effects, the consequent rumor mongering, and the subsequent buying/selling of Bitcoins in China that dominate headlines once every few news cycles. Let’s take a look at relevant legislation and what this means for the Chinese Bitcoin economy.
Dec. 5, 2013 — People’s Bank of China issues a notice
“Notice” here is an understatement. This is the announcement that brought down Bitcoin’s exchange value from its high-water mark against fiat currencies. It was in this notice that China classified Bitcoin as a “virtual good” and forbade financial or payment companies from dealing in Bitcoin and instructed third-party payment processors to stop dealing with Chinese exchanges.
Two weeks later, BTC China, the world’s largest Bitcoin exchange, announced it would stop accepting deposits in Chinese yuan.
“They essentially have cut us off from allowing customer deposits into BTC China’s bitcoin exchange,” BTC China CEO Bobby Lee said at the time.
Jan. 31, 2014 — BTC China resumes accepting deposits in yuan
Lee went with a bold interpretation of the December notice. Here is how BitLegal.io describes it:
“BTC China’s position is that the notice has legitimized Bitcoin exchanges as a business, by requiring them to register with the Ministry of Industry and Information Technology and not cease trading. However, even BTC China’s positive outlook has limits, acknowledging that banks in the country aren’t allowed to set up or become a Bitcoin business, and the ‘rules of the game’ could be changed by the government at any time.”
The fact that Lee acknowledged his company was operating in a legal grey area gave many pause, further fueling rumor mongering.
March 21, 2014 — Rumors, refutation and bank account shutdowns
Misinformation began to circulate around Chinese social media that an outright ban on Bitcoin would go into effect on April 15. That evening, Chinese officials refuted the rumor, referring back to the December notice as the government’s official position on Bitcoin but saying that further regulation could come into effect.
Shortly thereafter, Chinese news outlet Caixin “released a report that the regulatory authority of China required banks to shut down bank accounts of Bitcoin exchanges,” according to Li Runxi for Bitcoin Magazine.
A week later, many banks in China did in fact shut down accounts related to Bitcoin exchanges. Some exchanges tried to skirt these laws by issuing vouchers that could be claimed by third-party clearing services, but Chinese officials soon began going after exchanges and clearing services offering this service.
At the moment, Bitcoin stands on shaky ground in China. Analysts seem to agree that the PBOC is taking a softer stance toward the currency than it seemed to adopt back in December, but many banks still refuse to grant accounts to Bitcoin exchanges or Bitcoin businesses, Li notes.
“The ban issued by PBOC which prevents all the third-party payment service providers to deal with bitcoin business is still valid. Some banks still have a tough attitude towards Bitcoin. Many people still think bitcoin is a scam, over-speculated, high-risky or crime-related.”
“In the notice released by PBOC last year, it was stated that bitcoin could be legally traded in the form of a commodity. At the same time, bitcoin exchanges were required to register their clients’ ID and add supervision for money-laundering. It was believed that the notice and the following actions admitted bitcoin’s legal status, yet meanwhile prohibited financial institutions and third-party payment services providers from dealing with bitcoin business.”
“The attitude of the authority has changed since the beginning of this year. Some banks shut down the account of bitcoin exchanges, while recharge code from third-party payment services providers is also banned. At the same time, other officials from PBOC, including some bureau chiefs, wrote essays to criticize bitcoin, claiming that it is not a currency and does not function as a currency.”