Bitcoin plunges after report claims China will shut down exchanges

bitcoin
REUTERS/Benoit Tessier/Illustration/File Photo

NEW YORK (Reuters) – Bitcoin fell sharply on Friday after a report from a Chinese news outlet said China was planning to shut down local cryptocurrency exchanges, although analysts said this was just a temporary setback.

Sources close to a cross regulators committee that oversees online finance activities told Chinese financial publication Caixin that authorities plan to shut key bitcoin exchanges in China.

Reuters was not immediately able to verify the report. But two sources in direct contact with officials at three Chinese bitcoin exchanges – Beijing-based OKCoin, Shanghai-based BTC China, and Beijing-based Huobi – said the platforms told them that they have not heard anything from the Chinese government.

The news follows China’s move last week to ban so-called “initial coin offerings,” or the practice of creating and selling digital currencies or tokens to investors in order to finance start-up projects.

Greg Dwyer, business development manager at cryptocurrency trading platform BitMEX, said there was confusion over whether China would close bitcoin exchanges following the ICO ban.

“If this turns out to be true, then this sell-off is substantiated, and we could see further downside over the weekend, as it could mean the large bitcoin/Chinese yuan exchanges will need to halt trading,” he added.

Bitcoin dropped to a low of $4,227 on the BitStamp platform and last traded at $4,309.80, down 6.6%. On Sept 2, it hit a record high of nearly $5,000.

Sharp losses such as Friday’s are par for the course for an asset like Bitcoin, analysts said. Over the course of its eight-year history, bitcoin has on a daily basis risen as much as 18% and fallen as much as 13%.

Still, Bitcoin was still up nearly 346% this year.

John Spallanzani, chief macro strategist at GFI Group, said Friday’s losses could be short-lived. “Bitcoin is here to stay,” he said.

Jehan Chu, a partner at Jen Advisors, a Hong Kong-based early-stage blockchain venture capital firm, noted that should China shut down Bitcoin exchanges, it will not be the end of the cryptocurrency world in the country.

Blockchain, a digital ledger of transactions underpinning bitcoin, has leapt to prominence as it enable users to track and record assets across all industries.

“This is just China pressing the ‘pause’ button,” said Chu.

A big part of Bitcoin’s recent surge was the ICO craze, which exploded this year. Bitcoins and ether, another digital currency, are used to purchase tokens for ICOs.

By mid-July, tech firms had raised about $1.1 billion in 89 coin sales this year, roughly 10 times more than in all of 2016, data from crypto-currency research firm Smith + Crown showed.

(Reporting by Gertrude Chavez-Dreyfuss and Angela Moon; Editing by Dan Grebler and Chizu Nomiyama)

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