This should cause more stomachaches about Bitcoin bulls who think China is going to be big: The FT is now reporting that the People's Bank of China might be preparing harsh Bitcoin regulations.

Several months ago, Bitcoin bulls were pointing to China as the future of the currency. But it never made much sense for the Chinese government to tolerate it. One of the primary advantages of Bitcoin is that it's good for getting around capital controls and other monetary regulations. Capital controls are one of the main tools with which China manages its economy, so naturally the government would take a hostile stance.

The regulations reportedly being considered — and this has been reported elsewhere in other media already — is that banks would be banned from letting Bitcoin companies holding accounts, basically totally shutting them off from the financial system.

The FT report says that Chinese Bitcoiners believe they can still operate in this environment, and that the real threat would be an outright ban on Bitcoin, essentially a ruling that it is simply illegal.

Bitcoin has been hit hard in recent weeks, partly due to the China stuff, as well as the recent IRS ruling on taxes, which might place an onerous burden on Bitcoin users.