Bitcoin takes another hit after the largest exchange in China announced that they will no longer take deposits in yuan. As one of the world’s largest Bitcoin exchanges, the move was a major blow to the emerging alternative currency. It dropped sharply in value after news spread, falling from $618 Wednesday morning to $412 by the evening.
The decision comes two weeks after the national Chinese bank barred the use of the Bitcoin. That policy change indicates a lack of faith in the virtual currency by the Chinese government. They say Bitcoins lack legal status and a real-world equivalent. The Chinese central bank will no longer allow the use of Bitcoins in any finance or payment systems. This decision, made two weeks ago, has contributed to Bitcoin’s sinking value in December.
The exchange, BTC China, says they are still open for business. The changes with yuan deposits are only “temporary,” according to an official announcement. Account holders can still made deposits in Bitcoin and may withdraw yuan. BTC China says they are working on finding a solution to the Bitcoin crisis.
It is possible that the crackdown on Bitcoin in China is a response to a perceived threat. The anonymous, electronic nature of Bitcoin means it can be used free of government control and regulation. The yuan, China’s official currency, is strictly controlled and cannot be freely traded. The Chinese government’s move against Bitcoin, then, should not be terribly surprising — the notoriously restrictive nation has made it their modus operandi to outright ban what the state cannot directly control.
The effects of the Chinese’s decision on Bitcoin help to underline the fragility of the cyber currency. Before the changes made in China this month, Bitcoin rose to a record value of over $1,100. Investors may be wise to see these events as a warning of what is to come. It is entirely possible European and North American banks could choose to disown Bitcoin in the future, leading to a crash similar to the one on Wednesday.