Beijing’s bitcoin ban ‘helped China dodge a scary cryptocurrency bubble’
China made the right decision to clamp down on cryptocurrency exchanges earlier this year, ensuring the country steered clear of fallout from bitcoin’s surge past US$10,000, according to a central bank deputy governor.
Pan Gongsheng, also head of the foreign currency watchdog the State Administration of Foreign Exchange, said in Beijing on the weekend that it would have been “scary” if China had not banned bitcoin trading and initial coin offerings (ICO) nearly three months ago.
“If things were still the way they were at the beginning of the year, over 80 per cent of the world’s bitcoin trading and ICO financing would take place in China – what would things look like today?” he said on Saturday. “It’s really quite scary.”
An ICO is a crowdsourced fundraising practice that allows companies to raise capital by issuing their own cryptocurrencies.
The People’s Bank of China halted operations for digital currency trading platforms in Beijing and Shanghai in mid-September over concerns that the unregulated markets could pose major financial risks.
Growth in cryptocurrencies such as bitcoin – the biggest digital currency by market capitalisation – has been explosive but volatile. Bitcoin fell to US$9,000 on Thursday after hitting an all-time high of US$11,395 on Wednesday. It was priced at US$11,255 on Sunday night in Hong Kong.
Pan also warned on Saturday of a potential bitcoin bubble driven by the unpredictable and speculative nature of its trading, noting it was worth around US$1,000 early this year and only US$1 at times in 2011.
His comments come after US Federal Reserve vice-chairman for supervision Randal Quarles warned on Thursday of “spillover effects” from cryptocurrencies on the broader financial system.
“Without the backing of a central bank asset and institutional support, it is not clear how a private digital currency at the centre of a large-scale payment system would behave, or whether the payment system would be able to function, in times of stress,” Quarles said.
Despite China’s ban on cryptocurrency exchanges, the government said it was looking into issuing its own sovereign digital currency.
And although regulatory scrutiny initially put a chill on Chinese bitcoin markets, its investors have found ways to defy authorities and continue to actively trade the digital currencies.