Bitcoin - Could Beijing Make or Break It? - Part Three

by Dorsey & Whitney LLP

The nature and prospects of “virtual currencies”, and bitcoin in particular, have been keenly debated. These issues again attracted attention when Chinese government authorities issued a notice on bitcoin, defining its status and barring financial and payment institutions from trading in bitcoin. This eUpdate is the third part in a series of eUpdates on bitcoin-related topics and issues. The first part of the series described what bitcoin is. The second part of the series explained the legal status of bitcoin and how it is approached in different countries. The fourth part will analyze risks that virtual currency users may encounter.

Rise of bitcoin in China

In November 2013, bitcoin was favourably featured in various reports on China’s state-run CCTV television network and in government-backed newspapers, including the People’s Daily. This led to a gold rush, as the Chinese tech community constructed bitcoin mining rigs on a grand scale, paying US$12,000-15,000 for hardware, and recouping their setup costs within a matter of weeks. At present, China has the world’s second largest number of bitcoin nodes (parts of bitcoin network system that verify bitcoin transactions and release new bitcoins into circulation), after the United States.1 China’s fascination with the currency upstart led to an estimated 40,000 bitcoin user software downloads per day, as well as bitcoin being accepted by some online retailers and even physical traders standing in the Tiananmen Square.2 By December 10, 2013, 26% of the global bitcoin user software downloads took place in China, thus surpassing all other countries.3

In China, in addition to being used as a means of payment for goods and services, bitcoin is also viewed as an alternative method to invest or save money, alongside stocks, gold and property. In the absence of regulation, bitcoin could be used as a means to remit money out of China or, given the strict governmental control of the renminbi (the Chinese national currency), as a way to speculate on currencies. Bitcoin could also be used to circumvent strict investment caps on the property market, making it easier to convert renminbi to invest in equities and properties overseas, as well as to evade taxes.

There are nearly 20 bitcoin trading platforms in China. Approximately one-third of the global bitcoin trading flows through a single exchange, BTC China.4 At present, BTC China is the world’s largest exchange by trading volume5, having recently unseated two other bitcoin exchanges: Mt. Gox (Japan) and Bitstamp (Slovenia). BTC China trades only renminbi for bitcoin. Even though its website has an English interface, limited access to that currency globally effectively restricts its user base to China residents. BTC China has recently secured US$5 million in funding from a venture capital firm Lightspeed China (Lightspeed Venture Partners’ local arm) to further expand its operations.6

Bitcoin prices have been volatile and have gone through a number of ups and downs in 2013. In November 2013, bitcoin prices soared after the U.S. officials’ positive statements about bitcoin during the U.S. Senate committee hearings held on November 18-19, 20137. In early December 2013, bitcoin topped US$1,000, representing a 7,173% increase since January 2013, when it traded at US$13.75. In China, bitcoin prices soared by 861% from CN¥845 (US$138) on September 3, 2013 to its peak of CN¥7,273 (US$1,186) on November 29, 2013.8 The volume charts demonstrate that Chinese demand has been the main factor behind bitcoin’s global price increase.9

Bitcoin and Chinese government authorities

Until recently, the Chinese government authorities did not take a stance on bitcoin, in contrast to the country’s stringent investment and currency regulations. However, the situation significantly changed in December 2013. On December 5, 2013, the People’s Bank of China (PBOC), together with the other government authorities10, issued a notice (PBOC’s notice) on bitcoin, barring financial and payment institutions from trading in bitcoin.11 It was the first step taken by the Chinese government authorities towards regulating bitcoin. “Bitcoin is a ‘virtual commodity’ that cannot and should not be referred to or used as a currency as it is not created by the state mint, and does not have the legal tender status,” the PBOC’s notice said, but added that “the general public may buy or sell bitcoin as an online commodity at its own risk”. The PBOC’s notice also specified that financial and payment institutions may not:

  • employ bitcoin as a unit of payment for goods or services;
  • accept bitcoin as a method of payment;
  • purchase, sell, or deal in bitcoin;
  • engage in renminbi-bitcoin exchange services;
  • engage in saving, trust or mortgage services involving bitcoin;
  • undertake insurance activities related to bitcoin;
  • issue any financial instrument related to bitcoin; or
  • directly or indirectly provide any services related to bitcoin.

The PBOC urged government agencies to educate the public on such topics as currency, investment, and financial safety and indicated that it will closely monitor bitcoin and similar virtual commodities in the light of anti-money laundering risks. In the past, in order to avoid such risks, Chinese government authorities imposed restrictions on the bitcoin’s predecessor in China called “Q coin”, which was popular in the mid-2000s, but ceased to operate in 2007.12

The press noted that bitcoin exchanges may soon be required to inform government authorities about sizeable or suspicious transactions and that internet companies serving as bitcoin trading platforms may be required to request their clients to register with certain information such as name and identity card number.13

After the PBOC’s notice was published, divisions of Baidu14 (Jiasule) and China Telecom15 (Jiangsu Telecom), two of the best known names in Chinese internet and telecommunications spheres, which previously accepted bitcoin, removed references to bitcoin payments from their services, and announced that they will no longer accept bitcoin.16

As a consequence of the PBOC’s notice, bitcoin prices slumped to below US$1,000 on major bitcoin trading platforms. On BTC China, it traded at CN¥4,785 (US$780) immediately after the publication, compared with CN¥7,050 (US$1,150) on the previous day. Bitcoin prices, however, soon bounced back and partially recovered to CN¥5,765 (US$943) as of December 10, 2013. The majority of bitcoin trading currently still occurs in renminbi.17 As of December 10, 2013, approximately 59% of bitcoin global trading occurred on exchanges which traded in renminbi. Meanwhile, bitcoin trading in U.S. dollars accounted for roughly 35% of the global trading. Bitcoin trading in euros accounted for slightly less than 2%. No other currency accounted for more than 1% of the global trading.18

7    See and
10   The notice on bitcoin was issued by the PBOC together with the Ministry of Industry and Information Technology of China, China Banking Regulatory Commission, China Securities Regulatory Commission and China Insurance Regulatory Commission.
11 05153156832222251_.html
14 website is the largest website in China and the fifth largest website globally, as measured by average daily visitors and page views;
15   China Telecom Corporations Limited is an integrated information full services operator and the world’s largest wireline telecommunications, CDMA mobile network and broadband Internet services provider;

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Dorsey & Whitney LLP | Attorney Advertising

Written by:

Dorsey & Whitney LLP

Dorsey & Whitney LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.