China to ban bitcoin exchanges, allow OTC trades

Bloomberg

China plans to ban trading of bitcoin and other virtual currencies on domestic exchanges, dealing another blow to the $150 billion cryptocurrency market after the country outlawed initial coin offerings.
The ban will only apply to trading of cryptocurrencies on exchanges, according to people familiar with the matter, who asked not to be named because the information is private. Authorities don’t have plans to stop over-the-counter transactions, the people said. China’s central bank said it couldn’t immediately comment.
Bitcoin slumped after Caixin magazine reported China’s plans, capping the virtual currency’s biggest weekly retreat in nearly two months. The country accounts for about 23 percent 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.
“Trading volume would definitely shrink,” said Zhou Shuoji, Beijing-based founding partner at FBG Capital. “Old users will definitely still trade, but the entry threshold for new users is now very high. This will slow the development of cryptocurrencies in China.”
While Beijing’s motivation for the exchange ban is unclear, it comes amid a broad clampdown on financial risk in the run-up to a key Communist Party leadership reshuffle next month. Bitcoin has jumped about 600 percent in dollar terms over the past year, fueling concerns of a bubble.
The People’s Bank of China has done trial runs of its own prototype cryptocurrency, taking it a step closer to being the first major central bank to issue digital money.
The bigger risk for global traders may be the massive rally in bitcoin prices, according to McFarland.