Investors wondering why the Bitcoin price is falling today need look no further than China.
China's central bank, the People's Bank of China (PBOC), announced early Wednesday (today) it would be taking a closer look at the business practices of the country's Bitcoin exchanges.
"The PBOC is joining hands with Beijing Financial Bureau and other related departments, and have sent inspection teams to Bitcoin trading platforms including Huobi and OKcoin, to check if they are running in accordance with foreign exchange management, anti-money laundering, and trading exchange rules," the central bank said.
In the following hours the price of Bitcoin fell by nearly 1,200 yuan ($173), or about 18%, on the Chinese exchanges. The reaction in China quickly pulled the Bitcoin price down on the world's other Bitcoin exchanges.
The CoinDesk Bitcoin Price Index fell today from about $915 to as low as $752. Today's decline also comes on the heels of a bigger fall just days ago…
Today's Falling Bitcoin Price Follows Big Drop Last Week
The Bitcoin price initially fell off those highs on Jan. 6, when the PBOC put out a statement advising the Chinese Bitcoin exchanges to make sure they were adhering to all relevant laws and regulations. The statement also reminded investors of the risk of investing in Bitcoin, and that the PBOC considers it a "virtual commodity," not a currency.
While that statement did not represent a change in PBOC policy, the renewed attention on Bitcoin spooked Chinese investors.
Today's news that the PBOC is now launching an actual investigation of the Chinese Bitcoin exchanges amplified the fears created by last week's statement, sparking another sell-off.
"This is a ratcheting up of the rhetoric from the Chinese authorities – instead of 'we're watching' you, it's now 'we're investigating' you," Charles Hayter, founder and CEO of the digital currency website CryptoCompare, told Reuters.
Trading on the Chinese Bitcoin exchanges make up more than 90% of global volume. Although the numbers are thought to be artificially inflated by exchange operators seeking status as the biggest, there's no doubt that Chinese sentiment controls the Bitcoin price.
Chinese buyers played a major role in the 123% rise in the price of Bitcoin in 2016 for two reasons.
For one thing, the digital currency provides a possible avenue to evade China's increasingly restrictive capital controls. The falling yuan – it declined nearly 7% against the dollar last year –gave Chinese investors an incentive to use Bitcoin as a safe-haven investment.
While the reversal of the recent big gains in the price of Bitcoin is disappointing, it doesn't mean the digital currency is in a crisis.
In fact, the future of Bitcoin has never looked brighter…