Bitcoin Bounces Back After Chinese Government Bashing

Perhaps Bitcoin is stronger and more resilient than its critics have suggested, as the virtual currency has seemingly bounced back after critical statements were issued by the Chinese government.

Five Chinese government agencies, including the People's Bank of China, Ministry of Industry and Information Technology, China Banking Regulatory Commission, China Securities Regulatory Commission, and China Insurance Regulatory Commission, have jointly issued a notice about preventing risks related to Bitcoin usage.

The notice pointed out that Bitcoin is not currency in real sense and it does not have the equal legal position as currency. Therefore, it shall not use and circulate as currency in the market. Chinese search engine Baidu.com has heeded the edicts of its government masters and this past weekend allegedly already removed Bitcoin as a payment choice.

The government notice also said that financial organizations and payment organizations shall not set prices to their products and services with Bitcoin; they shall not buy, sell or trade Bitcoin as a central counterparty; they shall not implemented insurance business related to Bitcoin or include Bitcoin into the insurance coverage; and they shall not directly or indirectly provide other Bitcoin-related services to customers.

The five government units said this risk warning notice aims to protect the property rights of the public, safeguard the legal tender status of Renminbi, prevent money laundering risk, and maintain financial stabilization.

The notice clarified the nature of Bitcoin, which is a specific virtual product and it does not have the same legal position as currency. However, since the trade of Bitcoin is an Internet trading activity, ordinary people can participate in it under the premise of risk awareness.

After the government statements were made last week, the value of a bitcoin on exchanges in China and overseas tumbled by as much as 40%. However, especially overseas, prices have bounced back by as much as 30%. For example, one bitcoin on U.S.-based Coinbase.com now sells for USD870, whereas it had dropped from about USD1100 down to USD670 a few days ago.