SHANGHAI -- The international virtual currency market, which is often hailed as a stateless realm, is at risk of being hobbled under the heavy hand of Chinese financial regulators.
Authorities here have gone as far as issuing travel bans on exchange operators. An executive at a Shanghai exchange was effectively ordered to not leave the city, as the authorities demanded "cooperation" in protecting investors. Managers of Beijing exchanges OKCoin and Huobi have reportedly been forbidden to leave the country.
Chinese officials are trying to prevent those individuals from skipping town, said an executive for a separate exchange. This follows the Sept. 4 order from the People's Bank of China, the central bank, declaring initial coin offerings illegal.
Authorities have carried out the clampdowns under the banner of protecting investors. But the sudden ICO ban resulted in the salesmen who make the offers disappearing and investors sustaining losses on the virtual currency market. Many observers suspect that financial regulators are taking a tougher stance against exchange operators to deflect criticism for the previous move.
The exchanges are preparing to halt all trading between the yuan and virtual currencies at the end of October. Major player BTCChina announced earlier this month that it will halt all trading on Saturday. But bitcoin values are staging a recovery after a temporary downturn. Because operators are expeditiously allowing users to withdraw cash funds, investors have remained relatively calm.
While BTCChina will halt all trading, Huobi told its clients it would offer trading between virtual currencies from November and could move trading to an offshore location.
It appears that regulators are being somewhat flexible on the timing of the halts to trading. But if authorities turn up the heat on trading, it will yet again cause market mayhem.
The focus is also on how Chinese officials will treat coin "miners," or actors that verify and add transaction records to digital ledgers in exchange for virtual currency. This process requires a large network of computers that are on constantly. Because electricity is cheap in China, the nation hosts about 70% of the miners worldwide.
If Chinese regulators extend their reach to miners, they are likely to create obstacles in trading.
"We are preparing to be able to quickly move operations overseas in response to regulations," said a major mining business.