Back in December 2013, People's Bank of China has ruled that financial institutions are forbidden to handle any transaction using Bitcoin. Worlwide bitcoin price tumbled for a while afterward. However, they still leave bitcoin exchanges and related service providers alone. Still, it seems that the rule poses a challenge for China-based Bitcoin exchanges and Bitcoin itself in China.

Back in December 2013, People's Bank of China has ruled that financial institutions are forbidden to handle any transaction using Bitcoin. Worlwide bitcoin price tumbled for a while afterward. However, they still leave bitcoin exchanges and related service providers alone. Still, it seems that the rule poses a challenge for China-based Bitcoin exchanges and Bitcoin itself in China.

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Bitcoin Is Not Illegal, But...

The way PBOC arranged ruling on Bitcoin means that legally, it is all right to use or trade Bitcoin in China. Just because financial institutions like banks and payment processing companies are banned from handling it, doesn't mean that individuals can not touch it. However, therein lies the main trouble for Bitcoin exchanges: How would they accommodate Yuan in exchange of Bitcoin? Plus, if people can't easily change Bitcoin to Yuan and vice versa, then it become useless for masses.

Soon after PBOC released the decision, BTC China temporarily suspended deposit facility in Yuan. However, they are back in action on 30 January 2014 by outmaneuvering the rules. WSJ reported that they were able to restore deposit facility by receiving Yuan deposit in their corporate bank account, then transferring it to customer account, and only afterward it could be traded for Bitcoin.

For a while, Bitcoin in China is quite calm, but PBOC once again making waves through rumours that their previous ruling is going to be enforced soon. As the result, more Chinese bitcoin exchanges experienced difficulties as their financial partners withdrew from associating with them. BTC38 even temporarily suspended its operation in the beginning of this month. Soon after, bitcoin prices falling till below 400 USD by April 10. However, on April 11, PBOC governor Zhao Xiaochuan is quoted by Chinese presses saying that the central bank will not ban bitcoin. In response to that statement, bitcoin recovered and go back up slowly. BTC38 too, has opened up practices again.

Is that it? Well, we don't think so. PBOC has established an effective barrier for bitcoin penetration in China. The rule does not influence bitcoin exchanges as much as it is to merchants and individual user. Bitcoin exchanges could easily maneuver around the rules, but it will be more complicated for the other group who will use bitcoin in daily basis.

 

Bitcoin Legal Uncertainty Remains

China is not alone in effecting limits for bitcoin expansion. Russia also prevents certain financial companies from providing services related to bitcoin. Their moves even could be called mild compared to Vietnam and Iceland where bitcoin is outrightly banned. Nevertheless, majority of opinion seemed to be in waiting stage. As could be seen in the picture below, most countries allow their citizen to deal with cryptocurrency at their own risk, and there are still many more who have not stated their stance on this matter.

bitcoin legality area

Late last month, US IRS has ruled that Bitcoin is subject of tax. It sets another precedence for other countries who want to restrain bitcoin movements, because tax will efficiently cut into Bitcoin fluctuative profits. There are still questions on whether bitcoin community will abide the ruling, but we could conclude that paying the tax instead of evading it will show good faith instead of criminal intent.

That last point is important if bitcoin community wants to establish their legal place in the world, especially because more and more people related to bitcoin get dragged to the court because of various allegations. The worst is undoubtedly Silk Road and Mt Gox, but that is not the last. Just a few hours before this article is written, Bitcoin Foundation ex-Vice Chairman Charlie Shrem is reported to have been indicted by New York court in charges of money laundering. At this point, it's a no-brainer that Bitcoin legal standing will be better established if its users could guarantee that they do not use it for criminal purposes.