The Legislative Move
On January 6, 2017, the People’s Bank of China (PBOC) delivered a shot across the bow of the cryptocurrency industry that reverberates through global markets. Officials from China’s central bank met with representatives of the country’s three largest bitcoin exchanges — BTCC, Huobi, and OKCoin — urging them to comply with “relevant laws and regulations” and conduct immediate self-examinations of their operations.
The PBOC’s Beijing and Shanghai offices both issued statements on the evening of January 6, noting that “the recent bitcoin price is highly volatile” and encouraging exchanges to “operate strictly in accordance with the laws and regulations of China and to conduct self-examination based on related laws and correct any possible violations.” The central bank also stated that bitcoin “does not have real meanings as a currency,” drawing a sharp line between government-issued money and decentralized digital assets.
This move represents the most significant regulatory intervention in the cryptocurrency market since the 2013 PBOC ban on financial institutions handling bitcoin transactions. The timing is notable: it comes just days after bitcoin surged past $1,000 for the first time in three years, driven largely by Chinese trading volume and capital flight concerns.
Jurisdiction Context
China’s relationship with bitcoin has been complex from the beginning. The country is home to some of the world’s largest bitcoin exchanges and mining operations, yet the government maintains deep skepticism about decentralized currencies that operate outside its control. The 2013 PBOC directive prohibited banks from dealing in bitcoin but stopped short of banning individual trading, creating a grey area that exchanges have operated in for over three years.
The January 6 intervention appears to be motivated by several converging factors. First, bitcoin’s rapid price appreciation — from under $800 in early December 2016 to over $1,000 by early January 2017 — has drawn unwanted regulatory attention. Second, Chinese exchanges have come under scrutiny for their trading practices, with questions raised about the authenticity of reported volumes and whether margin trading and zero-fee structures create systemic risks.
The PBOC’s action also reflects broader concerns about capital flight. As the Chinese yuan faces downward pressure, authorities are increasingly vigilant about channels that could facilitate money moving out of the country. Bitcoin, with its borderless nature and relative anonymity, represents a potential escape valve that regulators are keen to monitor.
Industry Reaction
The immediate market reaction was sharp. Bitcoin prices, which had been riding high above $1,000, experienced a notable pullback as traders digested the implications of China’s regulatory posture. The three exchanges targeted by the PBOC — BTCC, Huobi, and OKCoin — collectively account for the vast majority of global bitcoin trading volume at this time, meaning any regulatory action in China has outsized effects on worldwide markets.
BTCC, the oldest and most prominent of the three exchanges, issued a statement confirming it would cooperate fully with the PBOC’s requirements. The exchange announced it would implement tighter controls on margin trading and strengthen its anti-money laundering procedures. Huobi and OKCoin followed suit, signaling a collective industry decision to prioritize compliance over confrontation.
Beyond the exchanges themselves, the broader cryptocurrency community is watching with a mixture of concern and resignation. Many observers note that regulatory scrutiny is an inevitable consequence of bitcoin’s growing mainstream visibility and price appreciation. Alejandro De La Torre of BTC.com observed that 2017 is likely to see increased focus on security and compliance as the industry matures.
Compliance Hurdles
The PBOC’s directive raises significant compliance challenges for Chinese exchanges. Chief among them is the question of what “self-examination” actually entails. The central bank has not issued detailed guidelines, leaving exchanges to interpret vague directives about operating within the law. This ambiguity creates operational uncertainty that could persist for months.
Margin trading, which has been a major driver of volume on Chinese exchanges, appears to be a particular target. All three exchanges have offered leveraged trading products that amplify both gains and losses, and regulators are concerned about the systemic risks these products pose — especially in a market as volatile as cryptocurrency. The shift away from zero-fee trading, which BTCC implemented in November 2016, may accelerate as exchanges seek to demonstrate good faith compliance.
Know-your-customer (KYC) and anti-money-laundering (AML) procedures are also under the microscope. While Chinese exchanges have maintained some level of identity verification, the standards have been less rigorous than those in regulated financial markets. Strengthening these procedures will require significant investment in compliance infrastructure and could reduce the anonymity that has attracted many users to cryptocurrency in the first place.
What’s Next
The January 6 PBOC meeting is almost certainly just the opening move in what will be a sustained regulatory campaign. The central bank has announced that inspection teams are being sent to the three exchanges — a level of scrutiny described as “much higher than the general internet financial risk investigation,” according to the International Institute of Monetary Affairs. This suggests the PBOC views cryptocurrency regulation as a priority rather than a routine matter.
For the global cryptocurrency market, China’s regulatory posture will be a defining factor in 2017. If the PBOC’s actions are measured and pragmatic — focusing on consumer protection and financial stability rather than an outright ban — the industry could emerge stronger and more legitimate. If the crackdown intensifies, the impact on trading volumes and prices could be severe.
What is clear is that the era of unregulated cryptocurrency exchanges operating in a grey zone is coming to an end — at least in China. The question now is whether other jurisdictions will follow Beijing’s lead or chart a more accommodating regulatory path. Roger Ver’s prediction that 2017 will be “the best year for bitcoin” may yet prove correct, but it is increasingly clear that the road ahead runs through the corridors of regulatory power, not just the decentralized networks of the blockchain.
Disclaimer: This article is for informational purposes only and does not constitute financial or legal advice. Regulatory landscapes change rapidly; always consult qualified professionals for compliance guidance.
PBOC summoning BTCC, Huobi, and OKCoin simultaneously was the moment crypto realized China could wipe out 90% of global volume with a phone call
BTCC never really recovered from this. Huobi and OKCoin pivoted hard but the writing was on the wall for china based exchanges even back then
“does not have real meanings as a currency” is such a raw translation but also kinda based when you think about it
raw translation yes but also more honest than most central banks are willing to be about crypto. at least they said it directly
the 2013 PBOC ban on banks handling BTC barely slowed things down. this 2017 move was different because it actually targeted the exchanges where all the volume lived
true but 2017 was the beginning of the end. by september they banned ICOs and forced exchanges offshore. 2013 was a warning shot, 2017 was the real crackdown
the volume drop was insane. chinese exchanges went from like 90% of global btc trading to basically zero within a year. regulatory killshot