China bans transactions between Bitcoin exchanges, third party payment companies

Less than two weeks after the government hammer came down on Bitcoin in China, the People’s Bank of China (PBoC) has struck another blow.

The country’s central bank held a meeting with about a dozen third-party payment companies, including the widely used Alipay, in which it said they can no longer be used to buy or sell the digital currency on Bitcoin exchanges.

PBoC made no mention of using normal bank accounts to buy bitcoins on exchanges, but many worry that might soon be the final nail in the coffin. After all, most of China’s biggest banks are state-owned, including the PBoC itself.

Bitcoin exchanges are the most popular method of buying and selling bitcoins. China is home to the world’s largest such exchange by transaction volume, BTC China (which just received funding one month ago), but its prospects now look gloomy. Without the exchanges, not many alternatives are left: peer-to-peer trading, buying directly from miners, or other less safe and more inconvenient methods.

According to Yicai (article in Chinese), users will still be able to withdraw their money from the exchanges until at least the Spring Festival beginning January 31, but they cannot deposit funds into their Bitcoin wallets. This could lead to a massive run on the exchanges, leaving them high and dry.

Prior to today’s revelations, BTC China implemented a 0.3 percent transaction fee for all of its services to stabilize the market and prevent impulsive trading, along with making a bit of money for itself. Before that, BTC China was in the middle of a zero percent commission promotion.

The ban also includes other popular crytpocurrencies, such as Litecoin.

On December 5, PBoC and five other government ministries announced Bitcoin is not a legitimate currency in China, and that financial and payment institutions are not allowed to accept them in exchange for products or services, among other restrictions. At that point, PBoC stated ordinary people still have the freedom to participate at their own risk. But after today’s announcement, their avenue to freedom just got a lot narrower.

Yesterday, bitcoins were trading at a high of $876. The price has since plummeted to $636 as of press time. That’s about half of the all-time high of $1,120 on November 29.

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This article by Paul Bischoff originally appeared on Tech in Asia, a Burn Media publishing partner.