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Beijing’s decision to shut down bitcoin trading platforms has left investors scrambling to cut their losses and threatens to deprive the cryptocurrency of a crucial market.

“The authorities don’t understand anything about bitcoin!” said a fuming Zhang Yanhua (張燕華), founder of an investment fund that was dead on arrival after Beijing started tightening the screws at the start of the month.

In mid-September, the People’s Bank of China told virtual currency trading platforms based in Beijing and Shanghai to cease market operations.

The bank has focused its sights not just on bitcoin, but also on ethereum and any other electronic currencies that are exchanged online without being regulated by any country.

They include the Chinese platforms OKCoin (幣行) and BTC China (比特幣中國), which accounted for 22 percent of the global volume of cryptocurrencies at the end of August.

The bank’s warning shot has shaken world prices and put a damper on the active community of local investors.

“The chances of a reversal are minimal,” said Zhang, who has been scrambling to offload his bitcoins.

Three months ago, the 50-year-old set up a small investment fund dedicated to cryptocurrencies, which met a premature end.

To acquire virtual currencies, “investment channels [in yuan] are becoming scarcer” and access to platforms using foreign currencies “will become too complicated,” Zhang said.

Others are seeking an alternative way out: Private over-the-counter transactions between individuals are taking off on messaging applications.

However, Zhang said that was “too risky.”

Sun Minjie, an investor who said he bought more than US$150,000 worth of bitcoins, intends to hold on to them for the long term.

“I expect nothing from the government... but the fate of bitcoin does not depend on the Chinese authorities,” Sun said.

Why has this hardening attitude toward bitcoin come about?

In mid-September, the National Internet Finance Association of China — an offshoot of the central bank — drew up a damning indictment against virtual currencies, accusing them of being “increasingly used as a tool in criminal activities” such as drug trafficking.

Bitcoin has also lured many ordinary Chinese attracted by the incredible surge in prices, a popularity that has generated “pyramid schemes and financial fraud,” said Dong Ximiao (董希淼), an economist at Peking University.

However, the central bank, which at the start of September banned companies from issuing electronic currency units to raise funds, wants to fight “the speculation” around the cryptocurrencies, which it said “seriously disrupted the financial system.”

“They didn’t ban bitcoin, but banned exchanges from trading for speculative purposes,” New York University finance professor David Yermack said, adding that China “has a long-term concern about capital flight,” which hits the value of the yuan.

“It has a lot to do with problems in the Chinese financial system that they’re worried about this as a competitive threat in some way,” Yermack said.

The price of bitcoin plummeted in mid-September after the ultimatum to the Chinese platforms, slipping to under US$3,300.

It made a vigorous recovery to about US$4,100 on Friday, although it traded around US$5,000 a month ago, according to the Bitcoin Price Index.

Another cause for concern is the future of bitcoin mining in China, which the authorities have yet to comment on.

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