Bitcoin markets have been roiled dramatically in the past two weeks by actions of the PBOC. Initial notice on December 5 stating that financial institutions would not be allowed to transact in bitcoin were followed by rumors that payment processors would no longer be able to serve bitcoin exchanges, which have since been validated. The result has been not only a dramatic drop in exchange rates – from $650 to as low as $400 earlier today – but also an historic spread between USD and CNY markets, reaching upwards of 30% this morning.
This morning, BTC China and OKCoin temporarily suspended CNY deposits, while still allowing CNY withdrawals and two-way flow of bitcoin.
“Dear BTC China valued customer: Due to new government regulations, BTC China will temporarily suspend CNY deposits. BTC deposits/withdrawals and CNY withdrawals are not affected, and will continue to operate in the interim. Rest assure that BTC China will continue to operate normally. Please pay attention to our notices for updates, as we find other ways to allow for CNY deposits. We deeply apologize for any inconvenience. BTC China, December 18, 2013″
In doing so, the technical bid has been pulled from the market, enabling only single-directional trading for new money entering the exchanges, wherein people can effectively only sell bitcoin. The result has become a significantly disjointed market across currencies.
As we pointed out yesterday when noticing an 9% discount between CNY and USD markets, relative to the ~5% historically, “If the rumors [about payment processors] turn out to be unfounded, the discount of CNY markets relative to USD would likely trend closer the norm.” The rumors turned out to be true, leading the converse to occur, with trading at $431 (equivalent) on BTC China and $545 on Bitstamp and – a 29% discount.
The situation at hand is the inverse of what has been playing out over recent months with Mt. Gox, the previous global leader in bitcoin exchange volume. As the company suspended withdrawals due to a series of banking issues, XBT / USD rates on their exchange climbed to a notable premium relative to other exchanges. With CNY deposits halted for BTC China, it’s not surprising to see the significant discount. Like the Mt. Gox scenario, arbitrage across exchanges is difficult to realize regardless of the price differential as a result of the capital flow restrictions.
Those restrictions, on top of the recently reinstated fees on the leading CNY exchanges have also dramatically impacted the distribution of global trading volume. As we noted yesterday, “[December 16] was one of the few days in the past six weeks where USD volume outpaced CNY.” Now with additional data points to consider, a trend indicating CNY’s decreasing relevance on the global stage is already beginning to emerge.
For live rates and volumes, see TGB’s Market Dashboard.