By Brenda Goh
SHANGHAI (Reuters) - Chinese authorities have ordered Beijing-based cryptocurrency exchanges to cease trading and immediately notify users of their closure, signaling a widening crackdown by authorities on the industry to contain financial risks.
Exchanges were also told to stop allowing new user registrations as of Friday, according to a government notice signed by the Beijing city group in charge of overseeing internet finance risks that was circulated online and verified by a government source to Reuters.
Platforms should also tell the government by Wednesday Sept. 20 how they will allow users to make withdrawals in a risk-free manner and handle funds to ensure that investors' interests are protected, according to the notice that was also reported by state newspaper Securities Times.
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"All trading exchanges must by midnight of Sept. 15 publish a notice to make clear when they will stop all cryptocurrency trading and announce a stop to new user registrations," the government notice said.
China is cracking down on the cryptocurrency business to try to limit risks as consumers pile into a highly speculative market that has grown rapidly this year. Reuters and other media reported earlier this week that it planned to shut down the exchanges.
Shanghai-based BTCChina, a major Chinese bitcoin exchange, said on Thursday it would stop all trading from Sept. 30, citing tightening regulation, while smaller Chinese bitcoin exchanges ViaBTC, YoBTC and Yunbi on Friday also announced similar closures.
Beijing-based platforms OkCoin and Huobi, which are among China's biggest exchanges, did not immediately respond to a request for comment.
The bitcoin price was down 5 percent at $3,071 at 1036 GMT on U.S. exchange Bitstamp. The bitcoin price index on trade website Coindesk slid below $3,000 for the first time in six weeks.
Bitcoin fell by more than 10 percent on Wednesday after a warning by JPMorgan Chief Executive Jamie Dimon that it "is a fraud" and will eventually "blow up".
Earlier on Friday, a senior executive at China's state-backed internet finance body said that "stateless" digital tokens such as bitcoin posed risks as they could be used for illegal actions, and rules were needed to support the development of "legal" digital currencies.
Li Lihui, a senior official at the National Internet Finance Association of China and a former president of the Bank of China, also told a conference in Shanghai that global regulators should work together to supervise cryptocurrencies.
"Digital tokens like bitcoin, ethereum that are stateless, do not have sovereign endorsement, a qualified issuing body or a country's trust, are not legal currencies and should not be spoken of as digital currencies," he said.
"They can become a tool for illegal fund flows and investment deals."
He said there should be a distinction between digital currencies, which were being studied and developed by authorities such as the Chinese central bank, and digital tokens such as bitcoin. Digital currencies developed by authorities could be used for good, with the right regulation, he said.
The state-backed internet finance body was set up by the central bank and its members include banks, brokerages, funds and consumer finance companies.
On Wednesday, it urged members to abide by Chinese laws and not deal in cryptocurrencies.
Since January, Chinese bitcoin exchanges have rolled out a series of changes to comply with increased scrutiny by Beijing. Still, the industry was thrown into chaos on Sept. 4 when China issued a directive banning initial coin offerings (ICOs).
China's crackdown "is all about protecting market stability and protecting the interest of investors, so halting these kinds of initial coin offerings is a very necessary action," Li said.
Vlad Zamfir, a researcher at the Switzerland-based Ethereum Foundation told Reuters that it was no surprise China is moving against such currencies as Beijing has capital controls that are "in direct tension with the free ability to send any amount of money anywhere without any kind of delay".
(Reporting by Brenda Goh; Additional reporting by Bi Xiaowen in BEIJING, Shanghai Newsroom and Adam Jourdan; Editing by Richard Borsuk/Keith Weir)