Bitcoin faces second wave of regulation

China has announced a fresh wave of regulation for the use of the virtual currency Bitcoin. Bitcoin exchanges will be blocked from accepting new inflows of cash.

Exchanges such as BTC China, the world's largest Bitcoin marketplace will no longer be able to accept renminbi from potential buyers. Third party payment companies have been instructed to stop offering clearing services to Bitcoin exchanges by 31 January.

Bobby Lee, chief executive of BTC China commented:

We’re still operating a Bitcoin exchange in China, legally, and we’re still allowing people to deposit and withdraw Bitcoin and withdraw renminbi

Chinese Bitcoin users will only be able to buy and sell the digital currency for renminbi in one on one exchanges.

The Chinese authorities are concerned that people could use Bitcoin to bypass China's strict capital controls. The ban comes only two weeks after the People's Bank of China blocked financial institutions from handling Bitcoin transactions.

China is not the only country intensifying its regulatory regime with regard to Bitcoin. Denmark is preparing to amend existing financial legislation to cover Bitcoin under its regulatory umbrella. However, Denmark is unable to ban a company from creating a Bitcoin exchange.

The move comes shortly after Norway announced that it will be treating Bitcoin as an asset and will therefore be subject to capital gains tax.

Danish legislators have called for transnational regulation of the virtual currency.

Benny Engelbrecht, spokesman for the social democrats said:

There are clearly issues that need to be solved on the use of Bitcoins.

There’s clearly a need to regulate Bitcoins and other virtual currencies; it’s not something we can do on our own. It has to be done on the European level and globally.