Bitcoin sinks as China tightens restrictions on trade

Bitcoin sinks as China tightens restrictions on tradeThe Chinese government has ordered local Bitcoin exchanges to refuse new inflows of cash, in a fresh effort to block the virtual currency boom in the nation.

Bitcoin prices went down sharply on the news, dropping 46% from Monday, and 60% since the historic peak of late November, to hit US$425 at BTCChina, the world’s largest bitcoin exchange by volume.

Exchanges in other countries also reported drops, with Japan-based MtGox seeing the exchange rate for one bitcoin fall from $717 to as low as $480 in Wednesday's trade.

Shanghai-based BTCChina and other bitcoin exchanges in the country rely on third-party providers to handle the transactions for bitcoin trading as they are not licensed to handle clearing services that enable investors to deposit and withdraw their money.

Earlier this month, China banned financial institutions from trading in bitcoin due to the risks involved, but kept individual trading legal.

The electronic money is not backed by a central bank of its own, and is best thought of as being virtual tokens, rather than real world coins, say experts. Their value is based on bitcoin’s ability to be exchanged for cash or used to buy goods.

Image by Zach Copley, via Flickr