Bitcoin prices tanked on Wednesday after Chinese authorities said they would begin investigating local bitcoin businesses to ensure compliance with Chinese laws.
In a statement released at 4:53 p.m. local time, the People’s Bank of China said its Shanghai branch would scrutinize bitcoin-related business to determine whether they have obtained the necessary licenses to provide credit or operate an exchange and implemented stringent anti-money-laundering systems.
Charles Hayter, founder and chief executive officer at CryptoCompare, which provides cryptocurrency data and analytics, said the Chinese government is stepping up its anti-bitcoin rhetoric.
Instead of ‘we’re watching’ you, it’s now ‘we’re investigating you’,” Hayter said in emailed comments.
Digital currency experts attribute at least part of a more than 100% run-up in bitcoin prices last year to Chinese investors, who have reportedly been using bitcoin to circumvent China’s strict controls on the movement of capital.
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The heaviest selling occurred on Chinese exchanges, where the bitcoin-yuan rate was trading at a discount equal to about $10, Hayter said.
Despite Wednesday’s slide in prices, an increasingly assertive China may help to provide an air of legitimacy to the market that could attract more investors and drive up prices and trading volume over the long term, experts said. Historically, the currency has been marked by large price swings and fears of cyberhacking, which may shake some investors confidence in the nascent cryptocurrency. Bitcoin has been drawing increased attention inside and outside of the digital-currency community which has helped push it to its best levels since the prominent hacking scandal of Mt. Gox, the then-dominant exchange for the currency, back in 2014.
was off 10% in recent trade, with one coin trading at $814. By comparison, it traded above $1,050—its highest level in more than three years—earlier this month.