How does the PBoC Investigation of Bitcoin Exchanges Affect Gatecoin?

Short answer: no immediate impact but guides our upcoming CNY market entry

The bitcoin economy is no longer just in the radar of the People’s Bank of China (PBoC) — it’s now in the cross-hairs.

This change in perspective demonstrates the growing adoption of bitcoin as an asset class and signals the development of regulated bitcoin trading markets in Mainland China.*

The PBoC’s investigations prove that the Chinese Government recognizes the potential of bitcoin as a technology to enable secure value transfers and is interested to ensure that bitcoin investors are provided the same protections and subject to the same levels of scrutiny as investors of conventional asset classes.

Since the PBoC’s initial investigations in late December, several major exchanges based in Mainland China have ceased margin financing, initiated trading fees and increased the amount of time it takes to process fund withdrawals. We were not privy to any discussions between these exchanges and the PBoC, but from official statements it is clear that the PBoC was concerned about the impact of margin trading losses, market manipulation and money laundering.

Gatecoin is based in Hong Kong, a Special Administrative Region (SAR) of the People’s Republic of China (PRC), which has a financial and legal system different to that of the Mainland. Therefore, the PBoC’s investigation and new rules for cryptocurrency exchanges does not directly affect us for now.

However, we are currently in the process of launching CNY markets on Gatecoin thanks to the establishment of banking relationships in the Mainland and we are ready to comply with all upcoming PBoC guidelines, which would be applied only to clients involved in trading CNY pairs. In the meantime, we are paying close attention to the situation in Mainland China and taking a very considered approach with our official launch of CNY markets.

We are eager to have dialogues with PBoC representatives to demonstrate that we have maintained very stringent KYC, AML/CTF procedures since we launched the Gatecoin platform in 2015. Before starting to offer exchange services, we had already acquired a Money Service Operator (MSO) license from the Hong Kong Customs and Excise Department as a signal to our prospective clients and banking partners that we take compliance seriously.

This MSO license was an effort to preempt possible regulation in Hong Kong and other jurisdictions, given the KYC/AML requirements of holding and maintaining the license. Our hindsight proved to be in-line with the considerations of Central Banks, such as Bangko Sentral ng Pilipinas which recently released new regulatory guidelines for cryptocurrency exchanges that resembles the requirements for traditional remittance companies.

There is still no explicit regulation for cryptocurrency exchanges in Hong Kong but we are eager to see some progress in this area. Perhaps the current proactive stance of the PBoC in the Mainland may prompt the HKMA to follow suit with some similar guidelines.

Although we acknowledge the arguments against (over)regulating certain financial markets, the fact is, regulation is a sign of a market’s legitimacy in the eyes of investors.

Regulation enables exchanges to establish new partnerships with banks and payment service providers (to facilitate easier fiat transfers) and provides growth opportunities for the adoption of cryptocurrency as a secure value transfer solution. Specific regulations would also encourage more traditional and alternative asset managers to increase their exposure to cryptocurrency and blockchain assets, as they would feel safer working within a regulated environment. In the long run, this will facilitate the legitimacy of blockchain assets as an emerging alternative asset class.

Overall, we are very optimistic about the future of cryptocurrency and blockchain assets exchanges in Mainland China under a new regulatory regime and look forward to working with the Chinese Government on creating a safe, transparent and prosperous blockchain enabled economy.

The Gatecoin Team

*Mainland China refers to the territories under the jurisdiction of the People’s Republic of China, which excludes the Special Administrative Regions of Hong Kong and Macau.