Why China is getting tough on Cryptocurrency?

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The National Internet Finance Association of China (NIFA) said on Friday that digital currencies such as Bitcoin and Litecoin have spawned a flurry of speculative trading activity in the financial market, largely due to a lack of clarity over value basis and volatile price fluctuations.

“Cryptocurrencies have not gained any legal status here in China. It is also illegal to raise funds through initial coin offerings (ICOs). China's Securities Regulatory Commission has not so far recognized any digital currency trading platforms,” said Yang Dong, Deputy Dean of Law School at Renmin University of China.

“To speak more accurately, China’s central bank never recognized the Bitcoin or any other virtual currency. They are still defined as virtual commodities here in China.”

The front page of BTC China shows that the prices of major types of cryptocurrencies all dropped in the last 24 hours. /BTCChina.com

China’s major Bitcoin Exchange, BTC China, announced on Thursday to stop trading by the end of this month. The move comes after the authorities banned initial coin offerings (ICOs) last week.

NIFA data shows that the total trading value of bitcoin in China surpassed 30 billion yuan by July, accounting for 30 percent of the world's total.

NIFA also noted the fast rising speculative atmosphere in the market. For instance, the price of one bitcoin was worth 500 yuan in December, 2013 before climbing to over 32 thousand yuan a unit at the end of that year.

Earlier this month, the People's Bank of China along with six other government institutions suspended ICOs as the currency's roller-coaster ups-and-downs have provided fertile ground for illicit activities.

Li Qiyuan, CEO of BTCChina says bitcoin still has room for price appreciation during a Bloomberg Television interview on Aug 10. /VCG Photo

So far, more than 30 ICO platforms have started to remove their crypto-currency services and provide refund to investors.

Zhu Ning, Deputy Dean of National Finance Research Center of Tsinghua University, said it’s necessary to tighten rules on cryptocurrency in terms of financial safety.

“Since 2000, there are many companies disguised as ICO trading platforms that are actually conducting illegal fundraising and fraud,” Zhu said.