Quora Question: How Will China's Bitcoin Rules Impact Its Value?

New rules prohibit financial institutions in China from trading, underwriting or offering insurance in bitcoin. REUTERS/Andy Clark

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Answer from Joseph Wang, a former vice president at a major investment bank in Hong Kong.  

It's times like these that you are glad that you can read Chinese. So, is the news out of China about banks & bitcoins good or bad news?

It's excellent news for bitcoin.  Essentially bitcoin exchanges in China -- and bitcoin itself -- are going to be treated as a "commodity" rather than a "currency" and therefore will not be subject to banking and currency-control regulations. The only restrictions on bitcoin exchanges is that they will be subject to the standard Internet censorship rules and will require the identity of all users to prevent money laundering.  Existing financial institutions will not be able to trade bitcoins, but this is a great thing for entrepreneurs.

Also, more excellent news out of Hong Kong. An HK bitcoin exchange basically shut down and stole everyone's money.  This is excellent news because, within days, they have been caught and are likely going to go to jail.  I'm very, very optimistic about Hong Kong "leading the way" for bitcoin.

The other good news is that the Chinese government understands bitcoin. According to the notice.

Bitcoin has the following four characteristics:

1) there is no central issuing authority
2) the total amount is limited
3) it is not geographically limited for acceptance
4) it is anonymous

According to the People's Bank of China, bitcoin is not a "true" currency because

1) there is no central issuing authority
2) there is no legal requirement that anyone accept bitcoin

Bitcoin is therefore a virtual commodity, and therefore is not subject to the laws regarding currency transactions, nor should circulate as a currency.

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