China is considering requiring bitcoin exchanges to disclose large transactions and confirm the identity of users after investors lost money through a fake platform, two people with direct knowledge of the matter said.
The People’s Bank of China, the China Banking Regulatory Commission and other regulators have held discussions about drafting rules for trading platforms that facilitate the buying and selling of the virtual money, said the people, who were not authorized to speak because the information is not public. The bitcoin exchanges may be forced to inform authorities about sizable or suspicious transactions, they said.
Regulatory oversight may restrain demand for bitcoin in China, which the nation’s largest bitcoin exchange, BTC China, said has become the world’s biggest trader of the virtual currency with more than half of global volumes.
Bitcoin prices have surged 89-fold in a year, spurring investor protection concerns and prompting former US Federal Reserve chairman Alan Greenspan to call it a “bubble.”
“We’re happy to see the government start regulating the bitcoin exchanges,” BTC China chief executive officer Bobby Lee (李啟元) said yesterday in a telephone interview.
Regulations would be for “the good of the consumer,” he said.
BTC is seeking recognition of the currency so it can be used to buy goods and services instead of being used for speculation, he said.
New rules for bitcoin may not clarify bitcoin’s legal status as regulators are divided over the issue, the people said.
The growth of bitcoin in China has come amid speculation that regulators may halt trading after police arrested three people on suspicion of stealing money from investors through a fake online exchange.
GBL, a bitcoin trading platform that began operating in May and had 4,493 registered users at the end of September, abruptly closed on Oct. 26, the official Xinhua news agency reported on Tuesday, citing police in Dongyang City, Zhejiang Privince.
One investor who reported the case to the police claimed a loss of 90,000 yuan (US$14,774), Xinhua reported, saying the total amount of money stolen was unclear.
The Hong Kong Standard reported on Nov. 11 that investors may have lost as much as 25 million yuan after the Web site closed.
The value of bitcoin traded at US$1,130.33 apiece at 2:48pm in Shanghai on BitStamp, an Internet-based exchange where bitcoins are traded for dollars, euros and other currencies. It was quoted at 6,964.96 yuan on BTC China. The price was US$1,217.84 on the Mt Gox online exchange.
Bitcoin prices are unsustainably high and the virtual money is not currency, Greenspan said in a Bloomberg Television interview from Washington on Wednesday.
“It’s a bubble,” the 87-year-old Greenspan said. “It has to have intrinsic value. You have to really stretch your imagination to infer what the intrinsic value of bitcoin is. I haven’t been able to do it. Maybe somebody else can.”
Bitcoins, which exist as software and are not regulated by any country or banking authority, surged to a record US$1,124.76 on Saturday.
The currency has rallied on growing interest from investors, while merchants are starting to accept bitcoins and US officials have told lawmakers such payments could be a legitimate means of exchange.
“I do not understand where the backing of bitcoin is coming from,” the former Fed chief said.
“There is no fundamental issue of capabilities of repaying it in anything which is universally acceptable, which is either intrinsic value of the currency or the credit or trust of the individual who is issuing the money, whether it’s a government or an individual,” he said.
There are about 12 million bitcoins in circulation, according to Bitcoincharts, a Web site that tracks the transaction activity across various exchanges.
Bitcoin was introduced in 2008 by a programmer or group of programmers going under the name of Satoshi Nakamoto.
US Federal Reserve Chairman Ben Bernanke told the US Senate committee the US central bank has no plans to regulate the currency.
“Although the Federal Reserve generally monitors developments in virtual currencies and other payments system innovations, it does not necessarily have authority to directly supervise or regulate these innovations or the entities that provide them to the market,” Bernanke wrote to lawmakers.
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