Investors warned of illegal fincancing of 3 Bitcoin platforms

(ECNS) — Regulators have warned institutional and private investors to be aware of the high risks associated with Bitcoin trading platforms in China, Beijing Youth Daily reported.

An official statement of the Shanghai Head Office of the People’s Bank of China said on Wednesday that it had investigated BTCChina, the country’s biggest Bitcoin trader, over issues ranging from money laundering to foreign currency exchange.

The result of an initial investigation showed BTCChina was engaged in illegal operations and financing activities. Funds and capital trading on the platform were also not guaranteed by third-party custody terms.

Two other major Bitcoin trading platforms, Huobi and Okcoin, which are under investigation by the central bank’s operations office in Beijing, were also reported to be engaged in illegal financing.

The three major Bitcoin exchanges plan to cease financing operations or take measures to de-leverage following the probe. Insiders close to the matter said transaction fees may be charged again to cover loss of income by exchanges.

The probes saw virtual currency trading on BTCChina drop from 6,000 yuan ($847) to 5,700 by 10pm on Jan 18. The decline was echoed on overseas Bitcoin exchanges as over 90 percent of global trading is in China.

After the declines, the PBOC and finance watchdogs issued a guideline terming such currencies “digital goods” instead of legitimate currency, calling Bitcoin “risky for its role in money laundering and usage by criminals,” according to Xinhua News Agency.

Bitcoin, without ties to the bank or government, is underpinned by blockchain technology, a digital ledger system that uses sophisticated cryptography. It allows users to spend money anonymously. With its help, investors are able to buy with Chinese yuan and sell in U.S. dollars, effectively bypassing the annual foreign exchange quota of $50,000.