Bitcoin nosedives following crackdown in China

On Wednesday morning, China’s largest Bitcoin exchange stopped accepting yuan deposits, sending the price of the virtual currency tumbling across the world.

At publication time, one Bitcoin is worth $588 dollars on Mt.Gox, the world’s largest Bitcoin exchange — less than half its late Nov. high of $1,242. On BTC China, the yuan-Bitcoin exchange rate has dropped about 46 percent since Monday.

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BTC China, the Chinese exchange, cited government regulation as the reason it’s unable to accept new yuan deposits. BTC China made the initial announcement on Weibo, a popular messaging service in China that operates similarly to Twitter.

“Due to new government regulations, BTC China will temporarily suspend CNY deposits,” said BTC China in a longer notice on its website. “BTC deposits/withdrawals and CNY withdrawals are not affected, and will continue to operate in the interim.”

A third-party payment provider, YeePay, abruptly cut off its service to BTC China Wednesday morning. BTC China had just switched to YeePay on Sunday as a precautionary measure. But the government this week asked third-party payment services to stop conducting Bitcoin transactions, according to a Tuesday report in Chinese Business News.

These developments come two weeks after China’s central bank banned financial institutions from accepting or trading Bitcoin. Announcing the ban, a spokesperson said Bitcoin “is not issued by a central monetary authority, it does not have the properties of legal currency, and it is not a currency in the real meaning of the word.”

Chinese nationals are major Bitcoin market participants. Market operators say they hold an outsize portion of the total number of Bitcoins in circulation. Bitcoin remains legal for individuals to use and trade in China, but without third-party payment providers, there’s no clear way to make new Bitcoin purchases.

This is seriously bad news for Bitcoin bulls, who have watched the price of Bitcoin skyrocket some 800 percent over the past two months as speculators bought into the currency. Chinese participation is thought to be a major driver of that price surge, which was stemmed by the announcement from China’s central bank two weeks ago.

China has cracked down on digital currencies before. Tencent, one of the country’s largest Internet companies, saw an online currency it developed banned by the Chinese government in 2009.