China has plans to ban the trading of digital currencies like bitcoin on domestic exchanges, which delivered another hit to the $150 billion cryptocurrencies market after the country outlawed initial coin offering last week.
Bitcoin took a dive in the previous session after Caixin magazine released an article about China’s plans on the ban, capping virtual currencies biggest down fall in almost two months. China is accounted for about 23 percent of Bitcoin trades and is also home to many of the world’s biggest bitcoin miners.
Zhou Shuoji, Beijing-based founding partner at FBG Capital, which invests in cryptocurrencies said “Trading volume would definitely shrink,” “Old users will definitely still trade, but the entry threshold for new users is now very high. This will definitely slow the development of cryptocurrencies in China.”
Analysts say bitcoin user will still be able to trade cryptocurrencies in China without exchanges but the process is likely to be slower and would come with an increased credit risk.
The exchange ban will not have a major impact on the prices of Cryptocurrencies globally because venues outside Chine is more likely to continue trading, according to FBG Capital’s Zhou.
The most effect of the ban for global traders is that there may be massive rally in bitcoin prices according to McFarland.
“Whenever you start to hear about Hong Kong taxi drivers becoming millionaires from buying bitcoin, you start to think this is not necessarily driven by fundamentals,” he said. “So you will get quite substantial pullbacks at some point.”