The value of Bitcoins on the Mt. Gox exchange plunged more than 40 percent Wednesday before recovering somewhat, in response to an announcement that the largest Bitcoin exchange in China has frozen all yuan deposits.
BTC China announced yesterday on Sina Weibo, a Chinese social media site similar to Twitter, that the exchange is temporarily halting all yuan account recharging functions.
Yesterday’s announcement came two weeks after the Chinese central bank refused to acknowledge the cryptocurrency and barred financial institutions and payment systems from selling, trading, or storing Bitcoins. That announcement sparked another crash that slashed the value from a high around $1,200 in November down to $800.
Today’s backlash knocked the value down even further to $455, meaning that the currency has lost nearly 60 percent of its value since the November high, although hours later it was trading around $560.
“It’s not surprising to see these sorts of fluctuations,” says Ethan Mollick, a business and finance professor at Wharton in Philadelphia. “There’s nothing backing it. It’s just sort of a commodity based on hope and it’s going to be very volatile.
Despite its ups and downs, the Bitcoin had come a long way toward earning status as a legitimate currency in the past year, Prof. Mollick says. However, the vote of no confidence from China blows a gaping hole in one of the major promises of Bitcoin.
It might just be too risky even as a way to make simple international transactions without fees and government controls.
“The narrative of Bitcoin has been that, aside from all of its Libertarian roots, one of the benefits of it is to allow the frictionless transfer of finances between countries in a way that’s not regulated by governments,” Mollick says. “I think that what this showed is that there is a long way to go before that’s true – if it ever will be.”
BTC China maintains that it will continue operations and will seek alternative means for users to recharge their accounts, according to the Associated Press.