Bitcoin Plummets After China Launches "Market Manipulation" Investigations Of Bitcoin Exchanges

The price of bitcoin slid over 1,200 Yuan in heavy trading in China, crashing nearly 20%, and down more than $100 under $800 on comparable US markets Wednesday, after China's central bank said it had launched "spot investigations" on bitcoin exchanges in Beijing and Shanghai in order to fend off market risks.

The investigation of exchanges, including BTCC, Huobi and OKCoin, was to look into "possible market manipulation, money laundering, unauthorized financing and other issues", according to the statements posted on the People's Bank of China's website.

To regular readers this should come as no surprise: precisely one week ago when Bitcoin hit record highs in China, we explicitly warned:

for those buying into bitcoin here on the momentum, most of which originates in China, we urge readers to be cautious as by now the PBOC has certainly noticed that the digital currency remains one of the final, and most successful, means of bypassing capital controls in China. Should Beijing mandate that bitcoin no longer be a means to illegally transfer capital offshore, there is risk of a dramatic, and sharp, drop in its price.

Well, Beijing noticed, and the "dramatic, sharp" drop in price has taken place as expected; worse with China now openly aggressive against bitcoin "manipulation" it is difficult to see where the next burst of buying momentum will come from, if only in the near term. However, one possibility is that Chinese capital control-evaders will now gravitate to other alternative digital currencies, such as Ethereum, which have so far been far less prominent among Chinese bubble chasers.

As Reuters further adds on the Chinese crackdown, authorities have been ratcheting up efforts to stop capital outflows and relieve pressure on the yuan to depreciate. The currency lost more than 6.5 percent against the U.S. dollar last year.

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