First there's the high, then there's the comedown.
The price of Bitcoin, which last month topped $1,200 on major exchanges, is now trading below $600, and China is to blame. Two weeks ago, China's central bank and various ministries issued a joint statement forbidding financial companies from processing Bitcoin-related transactions. Now BTC China, the world's largest Bitcoin trading platform by volume, has responded by ending its users' ability to fund their trading accounts with yuan, China's national currency.
BTC China broke the bad news in a message on Weibo, a Twitter-esque Chinese messaging service, according to The New York Times. It told users that while yuan deposits were being discontinued "for reasons we all know," the exchange would continue operating and Bitcoin deposits and yuan withdrawals would still be possible.
Over the past few months, China has become the world's largest Bitcoin market, a fact which China's government at first seemed to encourage. But it cracked down earlier this month, announcing that Bitcoin is not a legal currency and prohibiting financial firms and payment companies from buying or selling it, storing it or issuing Bitcoin-related financial products.
In the statement posted to its website on Dec. 5, the People's Bank of China said that "excessive speculation" in digital currencies could "harm the public interest." China is well known for strictly regulating the yuan, and government agencies appear to have taken the view that Bitcoin trading is speculation in the yuan by another means. However, people in China are still allowed to buy, sell and hold bitcoins as a commodity.
The restrictions have caused the value of Bitcoin worldwide to nosedive. At 12:21 p.m. Eastern time, the price of a bitcoin on BTC China was 3,135 yuan, or $516. On San Francisco-based Coinbase, which allows deposits and withdrawals in U.S. dollars from users' bank accounts, the price was somewhat higher at $575.
Some people on the sidelines will no doubt be gleeful at the prospect of Bitcoin's downfall, an event long predicted in some quarters. But Schadenfreude Sallies would do well to remember that there is a difference between a short-term bubble in a market and a market that is itself a bubble. Last Thursday, Coinbase announced that it had raised $25 million in a Series B round, the largest fundraise ever by a Bitcoin company.
"We think Coinbase can significantly accelerate Bitcoin's proliferation, and as that happens the Internet will enter a new phase of invention and opportunity," Chris Dixon of Andreessen Horowitz, which led the funding round, said at the time. "Bitcoin is the first plausible proposal for an economic protocol for the Internet."
Still, when it comes to the fiat-currency value of Bitcoin, a lot of digital wallets are significantly lighter today.