China is in the news again today. Regulators there have required the major bitcoin exchanges in China to immediately implement reforms. These major bitcoin exchanges, including OKCoin and Huobi, have responded by halting bitcoin withdrawals for an estimated 30 days. (They are still allowing Chinese yuan withdrawals, however, so people’s funds are not totally locked up.)
During this time, these exchanges will be implementing AML, or Anti-Money Laundering, rules to reduce criminal activity. Of course, wherever there is cash involved, some people will engage in criminal actions due to its anonymity, whether in dollars, euros, or bitcoins. Central banks, including the Federal Reserve in the U.S. and the Bank of China, both actively monitor and attempt to reduce illegal activity by enforcing various rules and guidelines, including AML rules.
This is a relatively new area of enforcement for bitcoin exchanges, and as there is a built-in level of anonymity with all cash (including bitcoin) transactions. Bitcoin exchanges, however, deal not just with bitcoin but with national currencies. Therefore, they are under the regulation of each nation’s banking regulations as they are considered to be money transmitters. The jurisdiction of these oversight agencies applies to exchanges, yet does not extend (at least not immediately) to online bitcoin wallet providers that do not provide national currency exchanges.
I believe that this is a part of the growing pains we will continue to see as the financial regulatory bodies around the world adjust and adapt to bitcoin. Or better said, as the bitcoin exchanges adapt to existing regulations where possible. I see this as a short-term blip, an adjustment, that is providing a short-term buying opportunity.
As bitcoin has been reaching up toward $1,100 in recent weeks, this drop back under $1,000 seems like a great buying opportunity to me. I don’t expect the price to stay below $1,000 for very long though. This is one of many hiccups that are likely to occur as bitcoin gets more attention and becomes more mainstream in the months and years ahead. And each may provide an opportunity for bitcoin investors in-the-know!