China may introduce ‘custodian service’ to stabilise the world’s largest bitcoin market

The Chinese authorities are mulling whether to introduce third-party custodian services to oversee the world’s largest bitcoin market, after its rapid expansion and a recent sharp price fall highlighted the potential threat it poses to the stability of financial markets.

“Regulators have noticed that some bitcoin platforms crashed during the recent market volatilities, causing some investors, particularly those trading with leverage tools, to bear huge losses because they were unable to log on to the website during the sell-off,” the official China Securities Journal (CSJ) reported on Tuesday morning.

The newspaper said that the regulators are discussing with industry insiders the possibility of improving trading security by setting up third-party custodian platforms for the bitcoin market.

Turnover of bitcoin in China now accounts for 80 per cent of the global total. The price surged to around 8,000 yuan per bitcoin by the end of 2016 from 2,500 yuan at the beginning of the year, CSJ said.

Zhao Dong, owner of Jiandong Tech, a company which buys and sells bitcoin, and himself a seasoned bitcoin investor, said individual investors would welcome the support of state-backed institutions, ideally banks or third-party payment firms, to bolster security and add credibility to the industry as it undergoes such breakneck expansion.

In late 2013, the People’s Bank of China (PBOC) banned financial institutions on the mainland from accepting bitcoin or providing related services.

Therefore, it would represent “a great turn of regulatory gesture” if banks or payment firms were introduced to govern the industry, Zhao said.