The recent suggestion that the Chinese central bank is considering to ban bitcoin exchanges operating in the country may be connected to the sharp bounce the yuan had last week to hit a near 2-year peak on the dollar.

Though the veracity of the claim of a ban is yet to be confirmed, its proposal could be to aid the pursuit by People’s Bank of China (PBoC) of a more neutral yuan rate with the potential for increased two-way volatility as suggested by analysts following the scrapping of two measures that were put in place to support the yuan when it was under significant selling pressure on Monday September 11.

This seems a plausible rationale for considering the ban option — if true as reported by Caixin and later reiterated by the Wall Street Journal — to steady the market. Otherwise, considering a ban would remain a subject of debate in the cryptospace which has a likely downside for the Chinese.

Exchanges Say No Ban
Despite the report was debunked as untrue in some quarters and major Chinese exchanges responded by saying they were yet to receive any notice from regulators to confirm its validity some days after, the impact was felt on the Chinese market as the price of Bitcoin dipped to the $3500 price range.

A key reason the three leading bitcoin exchanges in China – Huobi, OKCoin and BTCC – were made bold to state that a ban may not be the actual plan of the PBoC is because they have been – to the best of public knowledge – complying and always express their willingness to comply with any directives by the authorities.

A ban at this point would beg the question of whether the rigorous onsite checks and KYC/AML measures introduced earlier this year was not a waste considering that the PBoC or its agencies are better at identifying any default by an exchange and penalizing such acts can easily be justified.

OTC Rising
The exchange ban is also unlikely to have a major impact on the prices of cryptocurrencies globally as over the counter (OTC) transactions seem to have risen as a handy alternative. Since the uncertainty brought by the news, more Bitcoin enthusiasts in China seem to have reverted to the service of censorship-resistant LocalBitcoins.com for their Bitcoin exchange.

OTC has always been the way to go since decentralized exchanges which allows for peer to peer payment system without users having to transfer value with a central authority or third party involved are still not popular in parts of Asia and China in particular. Other people may resort to using VPN or other means.

The LocalBitcoins volume chart, according to Coin Dance, shows that the Chinese OTC market which has been within the Y20 mln range since June to indicate some stability has supposedly been disrupted by the recent unconfirmed news of a potential ban of exchanges where several trades are conducted on a daily basis. There is a volume jump in China’s OTC market up till the week ending September 9 – from Y20.3 mln the previous week to over Y32 mln.

China Vs Competition
China’s role in the bitcoin ecosystem is particularly notable for the country’s major mining and trading activities. Though it may take a while to catch up, China’s supposed edge in the mining aspect is already being contested – could face stiffer competition in 2018 especially from Russia and Japan.

To ban exchanges now, which will make more users move their activities underground as the market has seen with the momentum rebuilding in the Chinese market despite the ongoing ban talks, indicates it could only be a dip for a short run to create a buying opportunity but bitcoin will gain strength in the long run.