Bitcoin stumbles as Chinese government tells banks to stay away from it

Bad news for Bitcoin: the Chinese government has warned the country’s banks off trading in it, arguing that Bitcoin has a high-risk of being used by criminals and for money-laundering. The value of the cryptocurrency fell significantly in China as a result.

The government called for the registration of all Bitcoin transaction services and their users, with real names and identity card numbers. It also said excessive speculation around the virtual currency could harm the public interest and the country’s official currency, the renminbi. However, people in China are still free to trade Bitcoin online as a commodity.

China has been frequently cited as a new driving force behind Bitcoin adoption in recent weeks, partly because the country is a hub for bitcoin “mining”. A report on Tuesday suggested that the yuan now accounted for the majority of bitcoin trading, and a subsidiary of China Telecom has even tentatively started accepting the virtual currency for smartphone pre-orders.

However, the government doesn’t want everyone to go overboard with their Bitcoin enthusiasm. Thursday’s official statement followed a warning in November by Bank of China vice president Yi Gang, who said it was unlikely that China would accept Bitcoin as a legitimate currency in the near future.

The government said in its statement that the Bank of China would need to pay close attention to Bitcoin and other virtual currencies, particularly in order to combat potential money-laundering.

At the time of writing, Bitcoin’s value had dropped significantly in China. On Wednesday it reached ¥7,000 ($1,150) but on Thursday morning it fell as low as ¥5,200 ($850) before bouncing back a little. On the bitcoin-dollar charts, the volatile currency is currently trading back above $1,000, having dipped as low as $910 earlier on Thursday morning.