Chinese bitcoin users bemoan government crackdown

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BEIJING Beijing's decision to shut down bitcoin trading platforms has left investors scrambling to cut their losses and threatens to deprive the crypto-currency of a crucial market.

"The authorities don't understand anything about bitcoin!" fumed Mr Zhang Yanhua, founder of an investment fund that was dead on arrival after Beijing started tightening the screws at the start of the month.

In mid-September, the central bank, the People's Bank of China, told virtual currency trading platforms based in Beijing and Shanghai to cease market operations.

The bank has focused its sights not just on bitcoin but also ethereum and any other electronic units that are exchanged online without being regulated by any country.

They include two Chinese platforms, Okcoin and BTC China, which accounted for 22 per cent of the global volume of bitcoins at the end of August.

The bank's warning shot has shaken world prices and put a damper on the active community of local investors.

"The chances of a reversal are minimal," said Mr Zhang, who has been scrambling to offload his bitcoins.

Three months ago, the 50-year-old had set up a small investment fund dedicated to crypto-currencies, which met a premature end.

To acquire virtual currencies, "investment channels (in yuan) are becoming scarcer" and access to platforms using foreign currencies "will become too complicated", he told AFP.

But Mr Sun Minjie, an investor who says he bought more than US$150,000 (S$204, 280) worth of bitcoins, intends to hold on to them for the long term.

"I expect nothing from the government... but the fate of bitcoin does not depend on the Chinese authorities," he said.

There appear to be two main reasons for this hardening attitude towards bitcoin.

Last month, the National Internet Finance Association of China - an offshoot of the central bank - drew up a damning indictment against virtual currencies, accusing them of being "increasingly used as a tool in criminal activities" such as drug trafficking.

Bitcoin has also lured many ordinary Chinese attracted by the incredible surge in prices, a popularity that has generated "pyramid schemes and financial fraud", said Mr Dong Ximiao, an economist at Peking University.

But the central bank, which at the start of last month banned companies from issuing electronic currency units to raise funds, wants to fight "the speculation" around the crypto-currencies, which "seriously disrupted the financial system".

"They didn't ban bitcoin, but banned exchanges from trading for speculative purposes," said Mr David Yermack, finance professor at New York University.

Between 60 and 70 per cent of new bitcoins are mined in China, where the local leader Bitmain has imposing infrastructure. - AFP