Regulation Woes and China’s Bitcoin Blows, Weekly CoinReport Digest
Here at CoinReport, we like to breakdown the week’s bitcoin news and headlines for our readers. This week, ending April 4th 2014, has been tumultuous for bitcoin, to say the least. Let’s look at what went on this week and what you need to know in the world of bitcoin.
Chinese Dragon Bites Down on Bitcoin Causing Prices to Plummet
The start of this week was marred by a huge drop in the price of bitcoin, in response to rumours circulating that China was about to issue a ban on bitcoin. The initial rumours began circulating on March 21 2014, when reports surfaced indicating that the Chinese government were attempting to make it illegal for banks and currency exchanges to work together. This was quickly refuted by the People’s Bank of China (PBOC) but subsequent rumours, initiated by news reports at Caixin were not.
The Caixin article suggested a possible change in policy, regarding bitcoin in China, was in the pipeline and as yet, has not been pulled. The story claims that any banks found to be dealing with bitcoin exchanges after April 15 2014 will be held accountable and the story has since appeared in other outlets. The uncertainty caused by the news caused the price of Bitcoin to plummet to as low as $430 on Bitstamp. Currently, the price is hovering around $450 at the time of this report.
Yuan moment please: Bter halts deposits?
One source in China appeared to confirm some form of “notice regarding official regulations” was received, compounding the rumours, despite the fact that the PBOC had yet to release any official statement on the matter. The source in question, Bter, one of China’s biggest exchanges, halted all deposits in Yuan in response to this notice. In a statement, written in Chinese, but translated on Reddit the exchange said
“Hello. We’re very sorry to announce that, regarding deposits, Bter just received notice regarding official regulations that makes it impossible to avoid the temporary suspension of deposits.”
In a measure to appease concerns, Bter reassured customers that withdrawals would be unaffected. The measure was necessary in the wake of the MtGox collapse, where withdrawals were halted, trapping customer funds. Bter were sure to emphasize the difference.
“Withdrawals are unaffected, and as before will be received within 2 hours. Everyone can still perform normal withdrawal operations at their leisure. Bter upholds its promises and commitment to maintaining 100% deposit liquidity and customer withdrawals will not be affected.”
No April Fools Joke
Further suggestions of the worst came on April 2 2014, and unfortunately for bitcoin, was not a delayed April Fools stunt. The PBOC appeared to release additional notices instructing commercial banks and payment companies alike to close all bitcoin trading accounts within 2 weeks. This was a serious blow to bitcoin as China’s exchanges began responding, confirming they too would be suspending deposit services. Two popular exchanges released statement to that effect, Huobi and BTC38.
Huobi announced to customers that voucher deposit services would be halted. BTC38 issued the following statement to customers
“We will strictly comply with the notification provisions of the central bank to suspend the Renminbi recharging service, whereas, the following two services – Renminbi withdraws and the recharging and withdraw of virtual currencies, are still completely normal.”
Following the announcements by BTC38 and Huobi, the price of bitcoin fell further, to $416 and some began speculating that the reasons behind the apparent decision by the PBOC may have been the threat bitcoin poses to the Chinese monetary system.
BTC-e Offers Chinese First Hopeful Solution: Offshore Yuan Trading
In contrast to the moves made by Bter, Huobi and BTC38, BTC-e has opened up new doors for the exchange itself and for bitcoin. Rather than buckling under regulatory pressures, BTC-e have decided to offer trading in offshore yuan. In doing so, BTC-e will be the first exchange to offer trading in both dollars and yuan. The offshore yuan in this case will be marginally more expensive than regular yuan, but it is easier to access, easily liquidated into other currencies and available for trade on international markets by businesses. This will benefit investors and hopefully bolster trading.
BTC China Addresses PBOC Notices in Open Letter
“We’ve been tracking this issue. Whether it is local banks, Beijing’s central bank level, media channels and industry peers, we are paying close attention and keeping in contact. If we have any updates, we will immediately inform you.”While the rest of the Chinese exchanges claim to have received notices from the PBOC insisting all trading accounts be closed within 2 weeks, BTC China has issued an open letter addressing the rumour and confirming they have not received any such notice. The letter addresses the rumours and calls for PBOC to officially respond and provide some clarity on the issues at hand.
Stateside bitcoin community responds to regulation rulings.
Similar speculations over the reasoning behind the recent IRS ruling of bitcoin as property have been made this week, with many questioning why such an untenable burden would be placed upon bitcoin users without allowing for any public discussion on the matter by regulators. With the April 15 2014 deadline for individual tax filing (for fiscal year 2013) approaching, many will need to apply for extensions, in order to correctly calculate the newly imposed capital gains taxes required on all bitcoin purchases.
In response to the ruling, which will create an unrealistic amount of paperwork for individuals using bitcoin, Libra is developing a service to automatically tackle the challenge on behalf of users, effectively aiming to simplify the onerous process for bitcoin users.
The ruling by the IRS had an additional consequence, in that it reaffirmed bitcoin’s position as an analog to gold, in the form of “digital gold“. The bias placed on bitcoin to become a store of value, more so than a medium of exchange highlighted alternative potential avenues for bitcoin. As a commodity like gold it could be used as a store of value, capable of backing the issuance of alternative currencies. It could even be used as a clearing house for large cross border transactions.
Speaking of bitcoin and gold, Netagio has also developed a service whereby bitcoins can be converted into gold, so bitcoin and gold enthusiast alike can moderate their losses and gains with greater ease.
Bulgaria’s NRA Releases Bitcoin Taxation Guidelines
Across the Atlantic, the Bulgarian version of the IRS, the National Revenue Agency, released guidelines for the taxation of bitcoin, arguably far more suitable than those released by the IRS. Earnings made from the trade of bitcoins will be taxed at a similar rate to ordinary income and corporate income. The NRA explained:
“Taxable income … is the sum of the gains realized during the year specified for each transaction, reduced by the amount of losses realized during the year designated for each specific transaction.”
The NRA considers bitcoin as a financial instrument rather than a form of currency, a point disputed by Bulgarian Bitcoin Association member and founder of Hash.bg, Stamen Gorchev. Gorchev believes the NRA has no legal power or authority to classify bitcoin and added that the Bulgarian Supervision Commission had previously investigated the issue and have no authority when it comes to determining bitcoin’s legal status.
Bank of Montreal open to bitcoin if regulated
In a surprising turn of events, given the current regulatory mood, the Bank of Montreal offered the first show of support for bitcoin by a large Canadian bank. Chief Executive, Bill Downe said that BOM would be receptive to dealing with bitcoin transactions, provided that bitcoin becomes more regulated. Although the statment was made on April 1st, thankfully it doesn’t appear to be a joke. His only stipulation appears to be that bitcoin has to be reliable, something the wider community is working with regulators to achieve already. Downe said,
“If you wanted a Swiss franc transaction or a Japanese yen transaction or a U.S. dollar transaction, we can do that transaction for you…If bitcoin [can be] a reliable medium of exchange, then at that point in the future, we would be able to [conduct business] with bitcoin,”
Baby steps, but positive steps nonetheless.
Ending on a positive note
Not ones to focus on the negative, we’ll close on the good news that more bitcoin ATMs are popping up globally to the benefit of individuals and bitcoin. The first ATM in Israel was revealed and two more were sent to New Zealand as they join the bitcoin ATM brigade. Ebay.com have added a digital currency section for trading of bitcoin, dogecoin, mining contracts and mining hardware. Additionally, Bapple have paved the way for rent to be paid in bitcoin in Manhattan, NYC. Andreas Antonopoulos, along with the bitcoin community, have managed to raise over 47 bitcoins for Dorian S Nakamoto, partly as a thank you to the man and partly just to help him out with medical and legal fees. We’ve also seen a successful fundraising for the families of fallen fire fighters by the University of Georgia. What a generous community we have!
Remember, where there’s a will there’s a way!