Prices of bitcoin plummets after Bitcoin China announces on Sept. 14 that it will stop all trading from September 30. (Photo/CGTN)
Bitcoin and other cryptocurrencies plummeted overnight on Thursday, after one of China's biggest trading platforms announced it was ceasing all operations by the end of this month, sparking a sell-off amid fears that others would follow suit.
Bitcoin China announced on Thursday that it will stop all trading from September 30, and halt registration of new users from Thursday.
It came days after Chinese authorities ordered a ban on Initial Coin Offerings (ICOs), a nascent form of fundraising in which technology startups issue their own digital coins to investors to access funds, as the rapidly expanding market spawned concerns over financial risks.
After BTC China's announcement, bitcoin's value lost more than 500 US dollars overnight, with the threat of a Chinese ban on cryptocurrencies forcing a mass sell-off. The Bitcoin Price Index hit a low of 3,350.17 US dollars, after falling by as much as 27 percent since September 7 on its worst losing streak in a year.
Other cryptocurrencies were also hit hard, with litecoin the worst affected, losing 24 percent of its value overnight. The majority of litecoin trades took place on Chinese exchanges Huobi and OKCoin, according to Coindesk.
Bloomberg reported on Monday that all trade in cryptocurrencies on domestic exchanges would be halted by Chinese authorities, dealing a heavy blow to the global cryptocurrency market. China at one point represented 90 percent of all bitcoin trades, and this year still accounted for an estimated 23 percent, according to Bloomberg.
In the event of a domestic block on trading in cryptocurrencies, there would likely be a knock-on effect for the bitcoin mining industry. Bitcoin mining involves the use of powerful computers to solve the complex cryptographic puzzles behind cryptocurrencies' blockchain technology – solving a puzzle unlocks new bitcoins.
The New York Times reported in 2016 that as much as 70 percent of all bitcoin mining took place in China, and an end to domestic cryptocurrency trading would take a significant proportion of mining computing power off the grid.
While it remains unclear what direction Chinese authorities will take on bitcoin and other cryptocurrencies, statements released in late August and earlier this month displayed suspicion and concern over how the technology was being used to commit financial crimes.
The National Internet Finance Association of China (NIFA) on Wednesday warned that "financial and social risks have accumulated to a level that cannot be ignored," after previously saying in late August that ICOs "severely disrupt social and economic order."
However, the halt to BTC China may only be temporary, suggests Bloomberg quoting Matt Roszak, chairman of the US-based Chamber of Digital Commerce, who says "China is preparing to provide licensure for less than a handful of exchanges… licensure and engagement with government will help propel this industry forward."
Greater regulation by central authorities would represent a trend being seen in other major economies like Japan and Australia.
A temporary halt to cryptocurrencies in China may disrupt the global bitcoin market in the short-term, but could be of long-term benefit, as authorities take time to figure out how innovation in fintech can be reined in, controlled and have its potential maximized.