China’s Custodian Service can Grant Bitcoin Currency Status in the Country

The Bitcoin situation in China remains uneasy for the time being. Authorities are contemplating whether or not they should introduce a custodial service to oversee the Bitcoin market. The recent rise and fall of Bitcoin’s value prompted another warning of how cryptocurrency remains a potential threat to the stability of financial markets. This is not good news for Bitcoin at all, despite governments being unable to affect Bitcoin directly.

Chinese Regulators Aim To Destabilize Bitcoin

It is becoming evident the Chinese government is looking to destabilize Bitcoin’s price. A few days ago, the PBOC issued a new warning about cryptocurrency, triggering a massive sell-off in the Bitcoin market. Although that warning did not mean anything, it shows how afraid Chinese traders are when it comes to the government getting involved in Bitcoin trading.

The latest news coming out of China does not bode well for these traders either. Authorities are looking to create third-party custodian services for the Bitcoin market. Some Bitcoin platforms crashed during the recent volatility, causing investors to suffer huge losses. If an exchange goes down traders are unable to buy or sell cryptocurrency, which can spell disaster for one’s portfolio rather quickly.

For the time being, regulators are in talks with Bitcoin exchange operators to improve trading security. Third-party custodian services seem to be the right way to go, according to officials, albeit the global Bitcoin community may see things very differently. With Bitcoin trades representing close to 90% of all daily volume, it was only a matter of time until more governmental scrutiny would rear its ugly head.

The expansion of the Bitcoin ecosystem can benefit from third-party support in the form of state-backed institutions. Such a change does not mean governments and banks can suddenly regulate Bitcoin itself, though, as that will always remain impossible. All they can do is work together with centralized exchanges to introduce better security measures. Moreover, it would pave the way for Bitcoin to achieve legal tender status in China over the next few years.

The trading infrastructure of Bitcoin exchanges remains a topic of substantial debate. Many exchanges have gone through their own set of issues in recent years, making trading inaccessible. A third-party custodian service may not be the worst of ideas, depending on how regulators plan to execute this plan.

It is important to keep in mind the concept of a custodian service is only being contemplated for now and does not mean it will ever become a reality. There is something to be said for the concept, as it brings more legitimacy to Bitcoin. At the same time, this begs the question of whether or not such a change is needed in the first place.

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