Huobi and OKCoin, two of China’s biggest exchanges have announced that they will be blocking Bitcoin withdrawals for atleast 1 month as a result of increase AML / KYC regulations. It comes as little surprise that the exchanges are going to implement better KYC protocols as the PBOC had a meeting a 2 days ago about this exact subject.
After its closed-door meeting the PBOC released a statement warning Bitcoin exchanges that if they do not comply with the government’s regulation they will get shut down.
If the exchanges violated the above requirements, and if the circumstances were serious, the inspection team may ask the relevant departments to close down the exchange according to law.
It seems that this threat was aimed directly at the big three exchanges in China: BTCC, Huobi, and OKCoin. Surprisingly, BTCC hasn’t yet followed through with disabling withdrawals like its two competitors but that may change. While BTCC withdrawals aren’t completely blocked, it will take around 72 hours for withdrawals for process. In the meantime, Bitcoin’s price dropped 10% as traders are pulling their coins off of Chinese exchanges or transferring them to fiat and withdrawing that way. In a sense, the fact that OKCoin and Huobi disabled withdrawals caused a sort of bank run which crashed Bitcoin’s price significantly. Furthermore, since Yuan withdrawals are not disabled, many traders are converting their Bitcoin holdings into the local currency and are withdrawing that way. This definitely causes artificially high sell volume on the market which undoubtedly caused the drop.
The move to upgrade the platform to adhere to regulations was inevitable. It has been known that Bitcoin exchanges required little to no verification thus allowing for illegal activity, potential money laundering, and promotion of pyramid schemes. Now that the regulators are stepping in, while the price may crash in the short term, Bitcoin’s adoption has a higher chance of success in the long term if it becomes a fully legitimately traded asset.
Will the price recover?
The drop when the announcement from the exchanges came was quite scary. Bitcoin’s price touched $913 after a $1074 high, quite a volatile movement. However there was enormous support at the $960 level as opportunistic traders bought at the dip. While Chine is the main leader in Bitcoin trading volume, other countries till have a fair share of the market. As the anticipation for the ETF approval is around the corner, Bitcoin’s price has a high chance of recovering back to $1000 levels.
Some say that when the 1 month withdrawal ban is lifted, the price might drop further as traders will run to withdraw their coins, however just like with the ETF approval, that price correction may have just happened. Currently Bitcoin is trading at $971 on Bitstamp. Furthermore, Bitcoin’s price wasn’t the only market affected by the announcements, in fact, the altcoin market suffered as a whole as over 90% of cryptocurrencies experienced some sort of a drop.
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