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Beijing’s bitcoin crackdown sends market sliding

Australian start-ups say a move by the Chinese government to crack down on Bitcoin, after it quadrupled in value to $US5000 ($6246), signals the end of the gold rush.

A delegation of Australian Bitcoin entrepreneurs have arrived in China to find a chorus of official condemnation of the dangers of “virtual currencies”, amid a crackdown on the world’s biggest Bitcoin market.


The wild swings in cryptocurrency investments

Bitcoin and Ethereum are just some of the digital currencies that have been on a tear this year. But it hasn’t been smooth-sailing in the cryptocurrency world.

With the Turnbull government strongly backing fintech as a potential export industry, Austrade had organised the mission of a dozen start-ups using Blockchain, the cryptographic technology that underpins Bitcoin trading.

But the political winds have changed swiftly in Beijing, where on Monday Chinese venture capitalist Jingxi Capital’s Li Jing was on message, warning them not to “hype gold digging” with Blockchain.

The National Internet Finance Association of China yesterday warned Bitcoin and other “virtual currency” lacked a clear basis for value, and was a tool of money laundering, drug trafficking and smuggling. 

Chinese regulators met last Friday with Bitcoin platform operators and ordered them to stop the exchange of virtual currency for legal currency and to stop providing pricing information, Xinhua reported.

With more than a third of Bitcoin transactions made in China, and most of the “mining” conducted in remote Chinese villages with cheap electricity supplies (large rooms of computers work to solve cryptographic problems for the reward of a coin), the crackdown has sparked talk of a Bitcoin crash.

The value of Bitcoin fell to $US3800 on Thursday, from $US4100 a day earlier, on the news of the Chinese restrictions and comments by the head of JP Morgan Jamie Dimon that Bitcoin was like tulip bulbs (the first bubble market) and “a fraud”.

The Bitcoin price had reached a peak of $US5000 on September 2, after quadrupling since December.

The chief executive of FlashFX, former Westpac banker Nicholas Steiger, said: “Bitcoin is like gold mining. If my grandma is asking me whether to invest in Bitcoin, it’s gone too far.”

“It has become so big in China that they are starting to set boundaries around it.”

But Mr Steiger said the Chinese government crackdown on Bitcoin was “positive” for his business, which transacts with a rival currency, Ripple. Ripple is also being considered for use by the People’s Bank of China.

If my grandma is asking me whether to invest in Bitcoin, itls gone too far


FlashFX chief executive Nicholas Steiger

FlashFX is the only Australian company to have a financial services licence from the Australian Securities and Investments Commission (ASIC) to conduct international money transfers using Blockchain. It is also licensed in Hong Kong, and wants to find a Chinese partner.

The Chinese government is examining how it can use crypto-currency and still apply controls on money being moved offshore, which is heavily restricted in China. 

He was told the Chinese government is concerned technologies such as Ripple are “too fast”.

The head of the Australian Digital Commerce Association Nick Giurietto said in Shanghai the Chinese crackdown “seems like a pause while the regulators build their views on this”.

“As with any other market, what China does can influence global markets.”

He said Australian companies had spent “considerable time” working with Australian regulators to develop strong regulation of crypto-currency.

Deloitte Australia partner Richard Miller, who is on the ADCA advisory council, said Australian companies who gained early experience in Bitcoin have the opportunity to play a role in clarifying the “rules of the road” and standards.

“The concern with Bitcoin now, and it is not unique to China, is that it can be used to transact completely anonymously,” he said.

Mr Miller said he didn’t think a Chinese crackdown on Bitcoin would crash the global system, even if it did cause the price to fall in a speculative market.

“I think the protocol is flexible enough that it can adjust on a real-time basis to big swings in capacity – usage or computing capacity.”

If Chinese Bitcoin mining was to drop off, the cryptographic problems would reduce in difficulty and require less computing power to solve, which could make Bitcoin mining more economically viable in another part of the world, he said.

The cryptography is used to run the Blockchain – a system to protect and transact a digital asset between two users anywhere in the world.

Civic Ledger co-founder Katrina Donaghy said news of the Chinese government restriction hadn’t dampened the Chinese technology community, which was re-focussing on Blockchain.

WeChat, the Chinese social messaging company that has transformed consumer shopping habits in China with smartphone payments, is planning to use Blockchain technology to allow cross-border payments, she said.

Austrade says China made $5.5 trillion in digital payments last year, 50 times more than the US.
 

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