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Bitcoin Slumps Again As China’s Central Bank Raids Exchanges

China's central bank said on Wednesday it launched spot checks on major bitcoin exchanges in Beijing and Shanghai, knocking the price of the crypto-currency down by more than 10 percent to a new three-week low.

The probe of bitcoin exchanges, including BTCC, Huobi and OKCoin, was to look into a range of possible rule violations, including market manipulation, money laundering and unauthorized financing, the People's Bank of China (PBOC) said. It did not say if any violations had been found.

Chinese authorities have been ratcheting up efforts to stop capital outflows and relieve pressure on the yuan to depreciate. The currency lost more than 6.5 percent against the dollar last year.

The spot checks follow a shot across the bows last week from the PBOC, when it publicly urged investors to take a rational and cautious approach to investing in Bitcoin. Whether by coincidence or not, trading patterns in Bitcoin are now starting to look uncannily like a series of bubbles in Chinese financial markets over the last couple of years, in assets as diverse as stocks, housing and iron ore futures.

Chinese exchanges account for over 90% of trading in the crypto-currency. With its soaring price and the relative anonymity it affords, some believe Bitcoin has become an attractive option for tech-savvy Chinese to hedge against the yuan and get round rules that limit the amount of foreign exchange individuals can buy each year. Those rules were tightened at the end of last year, as the authorities introduced exhaustive questionnaires asking buyers why and how they needed the foreign exchange.

The Shanghai arm of the PBOC said it visited BTCC on Wednesday.

"The checks focused on whether the firm was operating out of its business scope, whether it was launching unauthorized financing, payment, forex business or other related businesses, whether it was involved in market manipulation, anti-money laundering or (carried) fund security risks," it said. The PBOC's office in Beijing put out a similar statement about its raid on OKCoin and Huobi.

Shanghai-based BTCC's CEO Bobby Lee confirmed the visit, but said he believed the company was not out of line.

"We think we are in compliance with all the current rules and regulations of running a Bitcoin exchange in China," he told Reuters by phone.

"I wouldn't call it an investigation. I think they are working closely with us to learn more about our business model and the Bitcoin exchange industry," Lee said, calling the meeting "very fruitful."

A Huobi executive who declined to be named confirmed the PBOC visited their office on Wednesday, but declined to provide details. A spokeswoman for OKCoin told Reuters its platform was operating normally, and it was working with the authorities.

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