Behind the crazy rise of Bitcoin: Domestic investors should beware of the "secret passage" cryptocurrency trading trap

The nearly 90% increase took less than two months. Perhaps only virtual currency can create such a sensational story these days.

Virtual currencies represented by Bitcoin have seen their "highlight moment" again recently. On March 12, Bitcoin reached a high of $72,890 per coin, or about 523,000 yuan per coin, up more than 5% on the day, setting a new record high.

In fact, this wave of growth has been going on for a while. Since January 23, the price of Bitcoin has entered an upward range, from $38,554 on that day to March 12, an increase of more than 86%.

The soaring prices tempted many investors to start making moves again. Pinning the lifeline of those who want to get rich overnight, a group of bloggers who "teach you how to trade in cryptocurrencies" have appeared again on major social platforms recently.

Under the surface excitement, the undercurrent of risk is always surging. Not only the roller coaster-like price fluctuations make the hearts and wallets of most ordinary investors unbearable; in China, speculating in virtual currencies is not only illegal, but also various "borderline" scams emerge in an endless stream. If you are not careful, you may lose all your money and touch the high-voltage line of the law.

Bitcoin skyrocketed

This wave of Bitcoin's rise has lasted for nearly two months. According to Coindesk statistics, in less than two months, the price of Bitcoin rose from $38,554 on January 23 to over $72,000 on March 12, an increase of more than 86%.

The last "highlight moment" occurred more than two years ago, when Bitcoin hit a record of $68,999.99 per coin in November 2021. It was not until the evening of March 5 this year that Bitcoin broke through $69,000, and has since continued to rise, reaching new highs many times.

The logic behind this wave of rising prices is also relatively clear. First, the issuance of Bitcoin spot ETFs brings more incremental funds to the market. On January 11, 2024, the US Securities and Exchange Commission officially approved 11 Bitcoin spot ETF applications, including those of BlackRock and other institutions. Prior to this, investors in the cryptocurrency market were mainly "scattered soldiers and generals", and the entry of these asset management giants announced that the "regular army" is accelerating its entry into the market.

After the “regular army” entered the market, it brought incremental funds to the market. According to Farside Investors data, as of March 12, the Bitcoin spot ETF had a cumulative net inflow of US$10.1003 billion since its launch.

Second, the fermentation of favorable information such as "halving" has boosted market sentiment to a high point. On April 23, 2024, Bitcoin will usher in the quadrennial "halving". During this period, the number of bitcoins obtained by "miners" mining on computers will decrease, and the block reward is expected to drop from 6.25 (BTC) to 3.125 (BTC). Zhang Liangwei's team at Soochow Securities believes that the law of halving objectively limits the growth rate of Bitcoin supply, has an anti-inflation effect, and helps to promote the appreciation of the currency price.

Third, the Fed's mid-year rate cut expectations have also fueled the surge in Bitcoin prices. Recently, Fed Chairman Powell reiterated that interest rates will fall this year. Multiple overseas institutions predict that the Fed will cut interest rates soon. According to CME Group data, the market trades that the probability of a 25 basis point rate cut in June is 57.4%. A report released by Goldman Sachs in February showed that the Fed will begin to cut interest rates significantly in 2024, at least four times, with the first rate cut starting in June. Industry insiders believe that once the Fed enters the rate cut range, risky assets will benefit, and digital currencies will also benefit from this.

Domestic investors "secretly" speculate in cryptocurrencies

Asian investors have been extremely active in this round of gains. According to data from TheBlock, investors from Asian countries such as South Korea account for about 70% of Bitcoin trading volume.

The "cryptocurrency circle" is so hot that it has also attracted the envy of many domestic investors. The reporter noticed that many investors on domestic social platforms shared strategies for buying Bitcoin with the help of overseas exchanges. Among them, EUREX, Huobi and Binance have become the main purchasing channels.

In the official community group of a certain exchange that the reporter joined, the number of new mainland users increased by more than 100 in one hour.

"For retail investors, the way to make money with Bitcoin is very simple. There are off-chain transactions and on-chain transactions." A popular science blogger in the cryptocurrency circle said on a social platform. Off-chain transactions are mainly conducted on exchanges. First, you pay to buy USDT, and then place buy and sell orders directly on the platform. "You can trade cryptocurrencies like trading stocks."

USDT is a virtual currency that links cryptocurrency to the U.S. dollar, with 1 USDT equal to 1 U.S. dollar. The blogger told reporters that the currency circle uses USDT by default for transactions because the price fluctuations are small.

The reporter also found in the actual test (without purchase) that some overseas exchanges can still register, log in and trade with mainland identities, without changing the location or purchasing an overseas ID. In addition, there is a type of "order guide" active in many communities. They claim to be able to guide the Bitcoin trading process step by step and provide investment guidance, which usually needs to be operated in a designated exchange.

However, trading virtual currencies through the above channels has always been strictly prohibited in China, and the above channels are all illegal "back channels". In 2017, relevant departments required all domestic Bitcoin trading platforms to be shut down and withdraw from the market. Subsequently, Bitcoin China, Weibit, and Yunbi.com successively announced the suspension of all trading businesses. In September 2021, the People's Bank of China and other ministries and commissions jointly issued the "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation" (hereinafter referred to as the "Notice"), which clearly stipulates the essential attributes of virtual currencies and related business activities: virtual currencies do not have the same legal status as legal tender, virtual currency-related business activities are illegal financial activities, and overseas virtual currency exchanges providing services to residents in my country through the Internet are also illegal financial activities.

Beware of risks

Due to regulatory restrictions, the above-mentioned Bitcoin exchanges have previously moved overseas. How do domestic investors' funds "enter and exit" transactions?

The reporter learned from many people in the cryptocurrency circle that most of the above-mentioned exchanges currently adopt the "C2C" model, that is, the counterparties of individual buyers are actually individuals, and point-to-point transactions are conducted, and the platform does not have a funding pool.

A senior person in the cryptocurrency circle explained that the underlying logic of this trading model is very similar to that of "Xianyu" (Note: a second-hand trading platform under Taobao). If both parties agree on the price, the transaction can be completed, and the platform plays a monitoring role.

“Under this model, transactions are generally between domestic players. Trading cryptocurrencies with foreign players is riskier and is subject to domestic regulatory monitoring, and accounts are prone to problems such as difficulty in withdrawing cash or card freezing.” The above-mentioned cryptocurrency industry insider explained that, except for the purpose of illegal money laundering, most people would choose the “easy mode” of domestic transactions.

Although the risk of currency exchange involving the inflow and outflow of funds is relatively small, there are still multiple risks in "cryptocurrency speculation" in China.

On the one hand, in recent years, the virtual currency market has been a mixed bag, with various "borderline" scams emerging one after another. (For details, see "Buying virtual currency increased 512 times, automatically picking up income every day, "Metaverse Investment" Ponzi Scheme Re-emerges") "In the market, except for a few mainstream virtual currencies we are familiar with, most of the others lack underlying support." Wu Haifeng, a researcher at the Institute of Advanced Finance of the Chinese University of Hong Kong (Shenzhen), told the First Financial reporter that many virtual currencies are essentially "fake coins" for "cutting leeks". At present, there is no channel in my country that can directly invest in electronic currency products such as Bitcoin. Investors should be wary of such investment traps.

"Even if you invest in mainstream virtual currencies such as Bitcoin, their prices fluctuate greatly." A senior person in the cryptocurrency circle told reporters that "cryptocurrency speculation" is not a sure win and requires a high investment risk. It is recommended that ordinary investors do not blindly follow the trend and first clarify their own risk tolerance.

On the other hand, according to the Notice, there are legal risks in participating in virtual currency investment and trading activities. Any legal person, non-legal person organization or natural person who invests in virtual currency and related derivatives and violates public order and good morals will have their relevant civil acts invalidated and will be responsible for the losses caused by them. If they are suspected of disrupting financial order and endangering financial security, they will be investigated and dealt with by relevant departments in accordance with the law.