A bitcoin coin is seen in an illustration picture taken at La Maison du Bitcoin in Paris, France. Picture: REUTERS
A bitcoin coin is seen in an illustration picture taken at La Maison du Bitcoin in Paris, France. Picture: REUTERS

Shanghai — China’s cryptocurrency crackdown has led to two exchanges announcing closures, while a senior executive at the country’s internet finance body has urged regulators to create a tougher framework of regulations to support the development of digital currencies.

Li Lihui, a senior official at the National Internet Finance Association of China and a former president of the Bank of China, told a conference "stateless" digital tokens such as bitcoin posed risks as they could be used for illegal actions, and rules were needed to support the development of "legal" digital currencies.

He said global regulators should work together to supervise cryptocurrencies.

Chinese regulators are cracking down on the cryptocurrency sector, in a bid to stamp out potential financial risks as consumers pile into a highly risky and speculative market that has seen unprecedented growth this year.

Major Chinese bitcoin exchange BTCChina said on Thursday it would stop all trading from September 30, setting off a slide in the value of the cryptocurrency that left it more than 30% away from the record highs it hit earlier this month.

BTCChina was followed by a second Chinese cryptocurrency exchange, ViaBTC, which said on Friday it too would shut its mainland China exchange business on September 30.

Chinese financial news outlet Yicai reported on Thursday that regulators were set to shut all bitcoin trading exchanges by the end of September.

Li said there should be a distinction between digital currencies, which were being studied and developed by authorities such as the Chinese central bank, and digital "tokens" such as bitcoin, which Li said were stateless and did not have sovereign support.

Digital currencies developed by authorities could be used for good with the right regulation, Li said.

"I understand (China’s crackdown) is all about protecting market stability and protecting the interest of investors, so halting these kinds of initial coin offerings is a very necessary action from the regulators," Li said.

China has been cracking down on fundraising through launches of token-based digital currencies, targeting initial coin offerings in a market that has ballooned this year.

The internet finance body on Wednesday urged its members to abide by Chinese laws not deal in cryptocurrencies.

The state-backed internet finance body was set up by the central bank and its members include banks, brokerages, funds and consumer finance companies. On Wednesday, it urged members to abide by Chinese laws and not deal in cryptocurrencies.

The bitcoin price steadied on Friday and was up 2.4% at $3,304 at 5.31am GMT on US exchange Bitstamp. In yuan terms, it was at 19,714 yuan, up 9.5%.

Buying on dips?

On Friday, some users of China’s Twitter-like Weibo platform said they used the price fall to buy more bitcoin to trade overseas, while others said they were withdrawing their bitcoin or cash from trading platforms.

Li said "digital tokens like bitcoin, ethereum that are stateless, do not have sovereign endorsement, a qualified issuing body or a country’s trust, are not legal currencies and should not be spoken of as digital currencies".

"They can become a tool for illegal fund flows and investment deals."

Since January, Chinese bitcoin exchanges have rolled out a series of changes to comply with increased scrutiny by Beijing. Still, the industry was thrown into chaos on September 4 when China issued a directive banning initial coin offerings (ICOs).

Vlad Zamfir, a researcher at the Switzerland-based Ethereum Foundation, said it was no surprise China was moving against such currencies since Beijing had capital controls that were "in direct tension with the free ability to send any amount of money anywhere without any kind of delay".

He said the Chinese "may want to have their own cryptocurrency which complies with capital controls".


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