Reports that the People's Bank of China (PBOC) planned to shut down the bank accounts of Chinese Bitcoin exchanges became all too real today (Thursday), as the exchanges began receiving official notices from their respective banks.
The news sent the Bitcoin price today falling as much as 12.4% to a low of $385.32, adding to the losses that started after the first rumors leaked out several weeks ago. Bitcoin prices have fallen from more than $600 in mid-March and more than $800 at the start of the year.
Two Chinese Bitcoin exchanges, BTCTrade.com and BTC100.org, said early today that they had received notices from their banks that their accounts would be closed on April 15, just as earlier reports had suggested.
While the largest Chinese Bitcoin exchange, BTC China, said it had not yet received any such notice from its banks (or the PBOC, for that matter), it appears now to be just a matter of time.
It's just the latest move from Chinese authorities to curb what it considers dangerous speculation in the digital currency.
The long descent of the Bitcoin price from its heights of more than $1,100 last fall started when the PBOC declared in mid-December that Chinese merchants could not accept the digital currency as payment for goods and services and instructed banks not to convert Bitcoin into yuan.
Fears that the Chinese government will eventually ban Bitcoin outright have led many Chinese investors to abandon it. Volume at BTC China, for instance, is down 80% from its peak.
"The people who are actively trading are few and far between," BTC China Chief Executive Officer Bobby Lee told PCWorld. "Certainly, the mainstream audience, if they ever get back in, is sitting on the sidelines."
Lee said BTC China is trying to find ways it can still satisfy customers' desires to obtain Bitcoin without violating any of the new rules.
The heads of other Chinese Bitcoin exchanges were similarly optimistic, despite the seemingly grave situation.
"OK is always here, rumor-spreaders can leave now, we already have plans for April 15th," said OKCoin's Vice President He Yi.
But even if the Chinese exchanges find a way to survive this latest blow, the implosion of the Chinese Bitcoin market will weigh down the Bitcoin price for months.
But eventually, the Bitcoin price will rise again.
The Bitcoin Price Is About More than China
The Bitcoin price rose dramatically last fall mostly because of the sudden spike in interest from Chinese investors. Within two months, volume on the Chinese Bitcoin exchanges soared tenfold.
In short order, action on the Chinese exchanges made up more than half of the global Bitcoin trading volume. Now that Chinese Bitcoin trading has returned to pre-October levels, the drastic reduction in demand has taken a heavy toll on the Bitcoin price.
But it's worth noting that the Bitcoin price was just $120 in September, before the explosion in Chinese interest. Even hovering near $400, it's still well above that level.
That means something else has made Bitcoin more valuable - the steady growth of the Bitcoin ecosystem.
Since last fall, many more merchants around the world have started to accept Bitcoin, and tens of millions of dollars in venture capital has flowed to startups.
What's more, Bitcoin investing will soon get much easier when SecondMarket gets regulatory permission to open its Bitcoin Investment Trust to retail investors, and the Winklevoss Bitcoin Trust, a Bitcoin ETF, wins regulatory approval later this year.
What many people don't realize is that Bitcoin is far more than a newfangled way to pay for things; it's a whole new technology - the "Internet of Money" - that will create new economic opportunities.
"Bitcoin is an open Internet technology not dissimilar to SMTP or HTTP, which provided the foundation for innovations like email and the Web, and transformed industry and society forever," Circle CEO Jeremy Allaire recently told Business Insider. "Bitcoin holds similar disruptive potential, most immediately as a new payments platform, modernizing how we use money, but also for applications that have yet to be imagined."
Do you think that Bitcoin holds tremendous potential for the future of money? Or are you in the camp of naysayers who believe Bitcoin is a bubble that has already burst? Sound off on Twitter @moneymorning or Facebook using #bitcoinnews.