Chinese Caution Banks to Just Say No to Bitcoins as Values Tumble

Posted on: December 9, 2013, 05:30h. 

Last updated on: December 8, 2013, 10:39h.

As Chinese and Dutch authorities forbade their banks from accepting Bitcoins late last week, the cryptocurrency tumbled in value (Image: Information Week)

It’s almost come to symbolize the war between organized society and the maverick movement away from it, but whatever your views on Bitcoins –  the world’s most popular cryptocurrency and much in the news of late – the news was not good about them late last week. After several weeks of skyrocketing value hikes that took the digital money from about $60 per Bitcoin last March to more than $1,200 in late November, a stern warning from the central Chinese bank not to deal with the currency caused a tumble that, as of press time, had Bitcoins poised between $731 and $737 in US dollars.

Meaningless Currency

The  warning came after the bank noted that the cryptocurrency has no “real meaning”, lacks any legal backing and shouldn’t be dealt with by the Asian country’s banking institutions at all. Also noted – and most likely more at the root of the Chinese banking system’s disdain for the money – were the recent high-profile connection between Bitcoins and money laundering and illegal goods procurement, particularly on sites like Silk Road, which was recently seized and shut down by the FBI, only to reopen a month later “under new management.”

Prior to the publicly issued warning, Bitcoins were gaining in popularity with the Chinese – as elsewhere – where they were primarily traded on exchange sites like FiatLeak. The Chinese authorities have not specifically banned the money for private use, but have cautioned individuals to be aware of the risks involved in using it.

Still Has Some Fans, Though

Although some mainstream approbation of the digital financial format continues – China’s largest mobile phone provider China Telecom even launched a Samsung promotion that could be bought with Bitcoins, as did the Chinese version of Google, Baidu, for firewall service payments – the banking warnings may also be the result of China’s strict controls on capital movement, which authorities set in place to contain extreme Chinese wealth from being able to easily be moved into foreign bank accounts and out of the Chinese regulatory oversight. Because Bitcoins are outside of the normal Chinese banking controls, users can buy an enormous sum in Chinese yuan and then turn around and convert those into U.S. dollars.

It seems that much of the rise of Bitcoin values over the past year – and  particularly last month’s seven-fold jump – was based on what was perceived as the currency’s potential in the Chinese market; it’s subsequent tumble clearly is based on  the opposite viewpoint. Because Bitcoins have no inherent value and are not tied to anything like gold, their entire market value is essentially determined by user perceptions.

In just one two-hour time period late last week, Bitcoins plummeted 28 percent in value, and no recovery is seen as of right now.

In markets outside of China, the news is at both ends of the spectrum; Virgin Galactic said recently it would accept the currency for its planned space travel with regular citizens (so look for lots of Asians on board) and if you want a Master’s Degree in Digital Currency, you can get one at the University of Nicosia in Cyprus, and even pay your entire tuition in the cryptocurrency.

The FBI and Dept. of Homeland Security might be offering some courses too, but you’ll probably be taking them from inside your prison cell if they catch you being a Bitcoin investor on the newly revamped Silk Road 2.0. And the Dutch banking system takes a similar view as the Chinese one, noting that should Bitcoins fail – or simply disappear online – there is no Federal Reserve-type system in place to guarantee your money whatsoever.

Online Password Grabs a  Threat to Bitcoin Users

A recent Internet chat forum called is warning users about what’s called a “distributed denial-of-service” (DDoS) attack, that was simply a smokescreen for launching malware capable of stealing users’ passwords. Site admins noted that the attacks had been traced to a system flaw in the domain registration firm known as AnonymousSpeech; the company specializes in anonymous email as well as hosting servers beyond the US and EU. The attackers hacked into AnonymousSpeech, effectively hijacking the discussion forums about Bitcoins and turning them into attacker-controlled servers by switching their DNS settings.

Although the DNS redirection attack was quickly spotted by the forum manager, and changed to another registrar, it was noted that the changes would take 24 hours to embed. The manager suggested that until the transition was completed, that users log on to the forum via its actual IP address, not its domain name, to make sure they were entering the “safe” site.

Just another reminder that when it comes to Bitcoins, it’s caveat emptor all the way.