Goodbye, Bitcoin

Trading volume on China's major Bitcoin exchanges has plunged in the past week, since authorities tightened regulation of the digital currency. [Photo/VCG]

Chinese Bitcoin exchanges including BTCChina and ViaBTC announced one after another to close all the transactions by the end of September, as ordered by a formal document released jointly by seven Chinese departments, involving the Central Bank, Cyberspace Administration of China, and Ministry of Industry and Information Technology. The news got wide attention from the market as the supervision and management of virtual currency is more restricted than ever.

Different from normal currency, Bitcoin is a digital virtual currency emerged after the financial crisis in 2008 that relies on certain computer algorithm. The total amount of Bitcoins is limited to 21 million and it can be exchanged to normal currencies of most countries and be used to buy virtual products in games.

After exchanges of Bitcoin started to operate, the trading price of Bitcoin soared. Due to the decentralization character of Bitcoin, it is hard to be effectively supervised or managed. In recent years, there were many problems related to exchanges of Bitcoins, such as market speculation, that have been creating financial bubbles and adding risks to the whole financial system. Some hackers stole Bitcoins by cracking down the locked algorithm. Moreover, the currency was used by criminals to launder money, sell drugs, smuggle, raise fund illegally.

Facing the chaotic situation of virtual currency, the Chinese government chose to act strongly and timely to control it. Regulators ordered exchanges to stop initial coin offering (ICO) on Sept 4, 2017, and has now gone further to instruct them to close their exchange platforms. In this case, Chinese regulation showed more strength than countries like Japan, Korea, and Singapore. Many media considered the actions as presentation of Chinese government’s determination and execution to prevent the risks brought by virtual currency and guarantee financial security.