Bitcoin Value Slumps Following Chinese Bank Ban And French Concerns

The Chinese government has banned financial institutions in the country from trading in Bitcoin, causing the value of the electronic currency to plummet by as much as 20 percent, while the French central bank has also voiced some concerns.

A notice issued jointly by China’s central bank, the People’s Bank of China, and four other government agencies, stated that although Bitcoin does not yet pose a threat to the Chinese financial system, there were other risks associated with its use.

The chief concern is that the currency is anonymous and untraceable, making it ideal for illegitimate activities, such as money laundering and blackmail, and for procuring illegal items like drugs and weapons.

China Bitcoin ruling

The impact of the ruling on the value of Bitcoin was severe because a disproportionate amount of the currency is held in China, with the Shanghai-based BTC China recently named the world’s largest exchange by volume.

However the number of actual Bitcoins in circulation compared to more traditional currencies is too small to have a serious effect on the wider economy. Individuals are still permitted to use Bitcoin, but any trading platform will be required to register with the Chinese telecommunications authority.

Some have interpreted the Chinese government’s actions as an important step towards regulation, but others have warned Bitcoin’s value could depreciate by as much as 50 percent in the next few weeks and such fluctuations will need to stop before it can become a legal form of tender.

French concerns

This concern is the most pressing one for the Bank of France, which says the volatile nature of Bitcoin makes it extremely risky for individuals to speculate on its value. It says this problem could be exacerbated by the difficulty in converting Bitcoins into real money, something that should be considered by retailers accepting the currency as payment.

The bank also has some security fears, chiefly that the currency could be used to fund terrorism, but says it does not pose a threat to the economy.

The UK government does not currently recognise Bitcoin, but the Channel Island of Alderney wants to establish itself as a hub for financial services using the currency, becoming the first jurisdiction in the world to introduce a regulated environment.

The US Senate has also lent Bitcoin a degree of legitimacy by ruling virtual currencies were a valid form of money and could even make for a more efficient form of commerce.  This ruling was one of a number of recent events that have contributed to a dramatic increase in the value of Bitcoin, with early adopters reaping the benefits.

What do you know about Bitcoin? Take our quiz!