The price of bitcoin has plummeted in the wake of an announcement from China’s largest bitcoin exchange that it would no longer be accepting new Yuan deposits.

BTC China said, that due to action by a third-party payment provider, YeePay, it could no longer accept deposits in the Chinese currency, although it would still be able to process withdrawals. BTC’s chief executive, Bobby Lee, said that YeePay gave notice on Wednesday morning, that it would no longer be providing services.  Lee blamed government regulation for the decision. On 18 November, BTC China raised $5m in a funding round from institutional investors Lightspeed. Until then, it had been self-funded by its three co-founders, who started the site back in June 2011.

Bitcoin tumbles

China’s central bank warned in early December that bitcoin was not legally protected and had no “real meaning” and barred financial institutions from using the currency.  On Tuesday this week, the central bank extended the ban to include payment companies such as YeePay and gave them a deadline of Chinese New Year, 31 January 2014, to comply with their regulations.

At source publication time, the value of one bitcoin on BTC China stood at ¥2,630 (£266.02), down from a high of ¥7,395 (£741.70) in late November. Bitcoin has plummeted against other currencies during the same period, dropping from £750 to £300 in the UK and from $1242 to $480 in the US.

Bitcoin remains legal to use in China and the central bank is sticking by their announcement that individuals are free to trade it (at their own risk). However, without any third party payment providers, any new purchases of the currency seem to be impossible.

This raises doubts about the future of bitcoin. The great boom in value that the currency has seen this autumn is widely thought to be as a result of Chinese users adopting it as currency.  Supporters of bitcoin have always argued that the currency is impossible to fully ban, because it exists as a decentralised network of transactions. A ban may be academic though, if the currency is rendered useless to merchants and customers by its devaluation.

[Image via policymic]