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Summer of bitcoin ending badly as China clamps down on trading

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Bitcoin’s meteoric summertime surge risks coming to a painful end as Chinese policy makers move to restrict trading amid growing warnings of a market bubble.

The biggest cryptocurrency dropped as much as 40 per cent since reaching a record high of $US4921 on September 1, cutting about $US20 billion in market value. The collapse extended to as much as 30 per cent this week since China began sending stronger signals of a clampdown on September 8, making this the biggest five-day decline since January 2015, when it traded at around $US200.

A technician makes repairs to bitcoin mining machines at a mining facility operated by Bitmain Technologies in Ordos, ... A technician makes repairs to bitcoin mining machines at a mining facility operated by Bitmain Technologies in Ordos, Inner Mongolia, China. Photo: QILAI SHEN

Bitcoin captivated the attention of financial markets this summer as the developer community embraced a new mechanism to improve usage and avoided what was labelled as a potential civil war, raising the profile of the digital ledger and fuelling the speculative price rise.

After the price of bitcoin reached a record high, China moved to rein in the exuberance, announcing on September 4 that it was outlawing initial coin offerings. While the motivations behind the move and the trading restrictions are unclear, such a ban could affect an estimated one-quarter of all bitcoin transactions.

BTC China, one of the nations’ biggest online exchanges, said Thursday it will immediately stop accepting new account registrations. Huobi.com and OKCoin said in statements Friday that they will notify all users by September 30 of the trading halt and will stop converting digital assets into yuan by October 31. Huobi.com added that only yuan-related businesses will be halted, and no impact on other services.

The price of bitcoin recovered as much as 10 per cent after Huobi.com and OKCoin released statements, whipsawing traders who saw it it fall as much as 12 per cent in earlier trading.

Even so, the notices suggest Chinese policy makers are moving quickly on a previously reported plan to end exchange trading, their most far-reaching measure to rein in the growth of cryptocurrencies. The People’s Bank of China didn’t immediately reply to a faxed request for comment.

The cryptocurrency ban will only apply to trading on exchanges, people familiar with the matter told Bloomberg. Authorities don’t have plans to stop over-the-counter transactions, the people said.

The trading restrictions come amid a broad clampdown on financial risk in the run-up to a Communist Party leadership reshuffle next month. Analysts have speculated that it could be the start of a broader crackdown by governments around the world leery of the potential for digital currencies to be used in scams or for black-market activity.

The recent record price run even prompted warnings of a potential crash from sceptics including JPMorgan Chase & Co.’s Jamie Dimon and billionaire investor Howard Marks.

China accounts for about 23 per cent of bitcoin trades and is also home to many of the world’s biggest bitcoin miners, who use vast amounts of computing power to confirm transactions in the digital currency.

Bloomberg

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