Chinese regulator ups pressure on bitcoin exchanges

BI Intelligence

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Chinese bitcoin exchanges have had a challenging few months, as criticisms and warnings, as well as spot checks, from the People's Bank of China (PBOC) prompted the three largest exchanges to introduce fees for the first time to tamp down speculation.

This resulted in lower trading volumes in the process. Now, it looks like further hurdles for the exchanges might be on the horizon, with the PBOC calling representatives from bitcoin exchanges to a private meeting on Wednesday, according to unnamed sources speaking to Bloomberg.

The details of the meeting were not disclosed, but what did emerge caused bitcoin prices to drop sharply. Bloomberg's sources did not name the exchanges the PBOC was meeting with, but did say they were all domestic. Money-laundering was one item on the agenda for discussion, the sources added. After Bloomberg broke the story shortly before 8 a.m. GMT on Wednesday, the price of bitcoin dropped by circa $30 on the CoinDesk exchange, or about 2%, according to Bloomberg data. Beijing-based trader Tian Jia told Bloomberg the price drop was likely due to continued uncertainty over the PBOC's plans for bitcoin regulation, and added that whenever the central bank has called meetings with the exchanges, bitcoin prices have plummeted.

This suggests that the PBOC would do well to make its stance toward bitcoin unambiguous. The regulator's current preoccupation with bitcoin stems in part from an intention to reduce the price volatility of the cryptocurrency. However, given that actions like calling private meetings and failing to clarify next steps spook investors, thereby provoking further price fluctuations, it seems logical that the sooner the PBOC issues clear regulatory measures for bitcoin, the sooner it will achieve the stability it is aiming for.

Blockchain technology, which is best known for powering Bitcoin and other cryptocurrencies, is gaining steam among finance firms because of its potential to streamline processes and increase efficiency. The technology could cut costs by up to $20 billion annually by 2022, according to Santander.

That's because blockchain, which operates as a distributed ledger, has the ability to allow multiple parties to transfer and store sensitive information in a space that’s secure, permanent, anonymous, and easily accessible. That could simplify paper-heavy, expensive, or logistically complicated financial systems, like remittances and cross-border transfer, shareholder management and ownership exchange, and securities trading, to name a few. And outside of finance, governments and the music industry are investigating the technology’s potential to simplify record-keeping.

As a result, venture capital firms and financial institutions alike are pouring investment into finding, developing, and testing blockchain use cases. Over 50 major financial institutions are involved with collaborative blockchain startups, have begun researching the technology in-house, or have helped fund startups with products rooted in blockchain. 

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• Spending on capital markets applications of blockchain is expected to grow at a 52% compound annual growth rate (CAGR) through 2019, according to Aite Group, to reach $400 million that year.
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• Putting blockchain to use for real-world transactions is likely not that far off. If working groups' tests are successful, firms could be using it to transact real value as early as the end of this year and we could see widespread industry application within the next few years. 

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