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Bitcoin price tumbles after China processing ban

December 18, 2013

This month has been neither merry nor bright for Bitcoin. Since Dec. 5, when the People's Bank of China ruled that it was not a currency, the price of a bitcoin has dropped from $1,140 to $542 — a plunge of more than 52 percent in value, according to the CoinDesk Bitcoin price index.

Following its first Bitcoin edict, the PBOC has continued to pile on:

• Third-party payment companies (PayPal, Alipay, TenPay) may not deal in the digital medium;
• merchants may not price or sell goods in bitcoins; and
• bitcoins may not be purchased with Chinese yuan (but may be withdrawn in yuan).

That last is particularly bad news, since 46 percent of bitcoins have until now been purchased in yuan, with 44 percent purchased in U.S. dollars, according to CoinDesk. Existing third-party Bitcoin relationships will be allowed to continue through the Chinese New Year, which falls around the end of January.

According to the AFP news agency, the PBOC action is directly related to China's tight control of the value of the yuan, a monetary policy to which Bitcoin presents an inherent challenge.

The AFP also reported that hackers have retaliated against the PBOC ruling with attacks on the central bank's official website and social media account.

Despite China's crackdown on Bitcoin and the worldwide implications of this action, supporters of the digital currency continue to insist that it has a solid future.

"This development will have a negative influence on bitcoin’s near-term price potential, but I would encourage investors to remember that speculation doesn’t drive reliable value in general … ," said Jaron Lukasiewicz, CEO of New York-based Bitcoin exchange Coinsetter. "Bitcoin’s long term value will ultimately be derived through global usage as a payment network in less restrictive countries."

However, Bitcoin's other major market, the United States, while accepting Bitcoin as a currency, insists that transactions must be transparent and comport with established regulatory statutes. Which raises the question of whether Bitcoin can get over the tipping point as a mainstream currency without two of its biggest potential markets.

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