A new development with uncertain implications was placed in front of bitcoin holders and speculators Thursday when China’s central bank said its institutions were prohibited from handling the cryptocurrency.
However, China did not prohibit its citizens from taking part in the bitcoin’s rise and fall as long as they understand the risks.
“Ordinary members of the public have the freedom to participate in bitcoin transactions as a kind of commodity trading activity on the Internet, provided they assume the risks themselves,” the statement from China’s central bank said.
Bitcoin had been trading above $1,200 and quickly fell below $900 on the Mt. Gox exchange following China’s announcement. However, bitocin has recovered and traded above $1,000 by late morning.
China’s restrictions comes as other governments worldwide are having to deal with the bitcoin’s growing popularity. But the virtual currency’s demand has soared in China as officials try to grapple with the risk of money laundering and any unknown looming threats to mainstream financial transactions.
The People’s Bank of China and other government entities in China said the restriction was needed to “protect the status of the renminbi as the statutory currency, prevent risks of money laundering and protect financial stability.”
Last month, U.S. regulatory officials told a Senate hearing that virtual financial products like bitcoin can offer real benefits. But officials also warned of the potential for increased acts of money laundering and other criminal activity associated with such cryptocurrency networks.
China’s central bank said bitcoins did not qualify as a mainstream or official currency, but private individuals still are allowed to trade them.
Bitcoins are created, distributed, and authenticated without the approval of any governmental agency or central bank. Their relative anonymity is an attractive feature for both criminals and legitimate speculators.
“Bitcoins are virtual goods that have no legal status or monetary equivalent and should not be used as currency,” said a Chinese central bank statement.
Despite big swings in value, bitcoin and other crytocurrencies of lesser value have growing toward broader acceptance. A growing number of online companies accept bitcoins, which can be exchanged into U.S. dollars and other official currencies.