The recent actions by the People’s Bank of China raise a lot of questions among bitcoin community members. Some people even feel the PBOC is using bitcoin exchanges to lay a perfect trap to identify people who use cryptocurrency to bypass capital controls in the country. If that were to be the case, the plan by the central bank is quite ingenious. For the time being, it remains unclear if this is the case, though, despite it making some sense.
Flushing Out People Using Capital Flight
The Chinese government has introduced some very tough restrictions related to capital flight over the past few months. Buying foreign currency is limited to a smaller amount than before, and exchanging Yuan to gold is becoming more difficult than it ever has been. By exerting more control over these markets, the PBOC hopes to stem capital outflows hurting the Chinese economy, albeit it remains unclear if they can do so.
One Reddit user posted how this move against Chinese bitcoin exchanges could be an elaborate scheme by the PBOC. After all, there has been a lot of speculation as to how Chinese traders use bitcoin to bypass capital controls in the country. Now that all exchanges need to adhere to stricter AML and CFT rules, it is not hard to see why people would think both incidents are related to one another. It remains unclear if this is the case, albeit there are some compelling arguments pointing in that direction.
By strengthening AML requirements, the PBOC can compile a list of all bitcoin users in China. Having such valuable information can serve any type of purpose, including getting insights as to who is using bitcoin to evade capital controls. Moreover, the PBOC now has a complete history of all traders in the bitcoin market and their previous activity over the past few years. Once again, this is valuable information to determine if there is any truth to the rumors of people using bitcoin to bypass capital restrictions.
Now that a lot of exchanges are restricting and delaying bitcoin withdrawals, the PBOC could determine who will do everything they can to convert their bitcoin to other currencies and assets. Now that bitcoin is no longer a valid withdrawal option – depending on which platform is being used – traders will have to start looking for alternative solutions. That means a lot of bitcoins will be converted back to CNY in the process, eventually crashing the price. That is what is happening right now, as the bitcoin price just took another major nosedive.
While traders and speculators are trying to get their bitcoin out of exchanges through other means, the PBOC could start monitoring who is moving a lot of funds all of a sudden. It is doubtful they would go through such drastic measures to gain insights into the people responsible for capital outflows. Then again, it seems highly improbable they would go after bitcoin exchanges for that particular purpose alone. It is not impossible, mind you, but it is not necessarily likely either.
In the end, it still appears the PBOC is doing everything they can to make bitcoin a legal form of currency in China. While their methods may cause some annoyance along the way, things could have been far more drastic. After all, there is nothing stopping the PBOC from telling bitcoin exchanges users can only withdraw 10 BTC per year. For some reason, it is not in the interest of the PBOC to do so right now.
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