Bitcoin, Nationless Currency, Still Feels Government’s Pinch

Bitcoin Art (Photo credit: btckeychain)

If Bitcoin is a bubble, as its critics contend, it is showing signs of deflating.

A rapid succession of moves by governments around the world has cast doubts on the legitimacy of the virtual currency, and its price fell about 60 percent at one point on Wednesday morning from its high earlier this month. It recovered some as the day went on.

The price volatility is underscoring Bitcoin’s sensitivity to decisions by government officials despite its promised status as the first global currency free of government intervention and oversight. Money, it turns out, is still a government prerogative.

“This tight regulation is really counter to what a lot of folks thought was going to happen,” said Mark T. Williams, a finance professor at Boston University who has been tracking Bitcoin. “Regulation is the future of e-currency, not decentralization as many had hoped.”

The most damaging news for the digital currency has come out of China, where the largest Bitcoin exchange, BTC China, said on Wednesday that it would no longer accept deposits in renminbi, the Chinese currency.

“For reasons we all know, BTC China has had to cease renminbi-account charging functions,” the exchange said in a message on its verified account on Weibo, China’s Twitter-like messaging service. It said that it would continue operating and that existing deposits and renminbi withdrawals would not be affected.

By Wednesday evening, the Shanghai-based BTC was quoting Bitcoins at about 3,200 renminbi, or $530, each. That was a drop of nearly 40 percent from the price on Tuesday and less than half of the peak price of 7,395 renminbi on Dec. 1.

The development comes less than two weeks after the Chinese authorities barred mainstream financial institutions from dealing in the virtual currency and a series of moves that followed elsewhere.

China had been the fastest-growing part of the Bitcoin world, but it is not the only place where government officials have started to address virtual currency. Over the last week, the European Banking Authority and the authorities in Denmark, Norway, Australia and New Zealand have all raised an alarm about the speculative nature of the new online currencies.

The Danish Financial Supervisory Authority issued a warning on Tuesday that gave a long list of dangers, including that the “value of your virtual currencies can change very quickly and can in principle fall to zero.”

The warnings have led to a sharp reversal for Bitcoin after the price of a single coin rose nearly 500 percent in November, fueled by hopes that the currency could serve as a cheaper global payment system.

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