The regulation of virtual currency transactions has been basically completed. What does "normalized supervision" mean in the future? When will new changes occur?

Wu said author | Colin Wu

Editor of this issue | Colin Wu

In the "China Financial Stability Report 2021" released by the Central Bank on September 3, it was emphasized in the "Main Achievements of the Battle to Prevent and Resolve Major Financial Risks" that the rectification work in the fields of Internet asset management, equity crowdfunding, Internet insurance, virtual currency transactions, and Internet foreign exchange transactions has been basically completed and has entered normalized supervision.

Wu said that blockchain was the first to notice this and made relevant reports, and domestic and foreign media followed up. In fact, the central bank's previous statement had already hinted at this.

On July 30, the People's Bank of China held a work meeting for the second half of 2021. Article 7 of the meeting (part of the achievements in the first half of the year) proposed to severely crack down on illegal virtual currency activities. Article 7 of the second half of the plan proposed to maintain a high pressure on virtual currency trading speculation. This statement is similar to the above.

On August 3, the Shanghai headquarters of the People's Bank of China held a work meeting for the second half of 2021, proposing that the achievements made so far this year include: steadily advancing financial supervision and risk prevention and control, and maintaining the overall stability of local finance. Continue to prevent risks in virtual currency transactions and ICO token issuance, and urge the rectification of newly discovered illegal businesses. Strengthen supervision, law enforcement inspections and penalties in the fields of payment settlement, anti-money laundering, credit reporting, cross-border funds, etc., and have "zero tolerance" for all kinds of illegal and irregular behaviors.
Regarding the work in the second half of the year, the Shanghai headquarters of the People's Bank of China pointed out that it will severely crack down on illegal and irregular activities in the foreign exchange field, such as underground banks, cross-border gambling, and online foreign exchange speculation; do a solid job in anti-money laundering supervision and promote the conviction of money laundering. It did not specifically mention virtual currency.

These two meetings have shown that decision makers are satisfied with the crackdown work in the first half of the year. Virtual currency is no longer the focus of the crackdown for the time being and has shifted to normalized supervision.

Domestic and overseas industries, especially exchanges, seem to have "heaved a sigh of relief". In fact, this round of crackdowns mainly affected the Bitcoin mining industry. Exchanges have taken more active self-restrictions, especially the self-restrictions of the top exchanges are relatively strict, such as not allowing Chinese IP/mobile phone numbers to register, restricting Chinese users from contract transactions, etc. Binance no longer allows Chinese mobile phone registrations for a period of time, and Huobi has closed the use of contracts for new Chinese users, resulting in a sharp drop in revenue. The above measures do help to "prevent personal risks from being transferred to society", and it is no longer easy for external retail investors to enter the "contract casino".

Since the future will enter "normalized supervision", what does it mean? First, at the central bank level, anti-money laundering is still the focus, and the use of cryptocurrency for money laundering will continue to be the focus of crackdown, because anti-money laundering has been the top priority of the central bank in recent years; second, at the public security level, illegal fundraising, fraud, pyramid schemes, etc. are also the current focus of crackdowns, and fraudulent activities disguised as cryptocurrency will be the focus of long-term crackdowns; third, at the network level, the promotion and marketing of encryption-related businesses on the Internet and social media may be continuously cleaned up and cracked down.

Reference: Interpretation of the State Council's new regulations on handling illegal fund-raising: Be careful when investing in virtual currencies and bear the losses yourself

However, as with the recent sudden crackdown on Internet companies and the entertainment industry, China's policy does not require long-term debates like in the United States, so when new situations arise, there is still a possibility that policies will suddenly change significantly. The severe crackdown on the mining industry has also made the industry realize that once it "really exerts its strength", the consequences are not the so-called "running out of tricks".

Based on past experience, these new situations may lead to policy changes. First, large-scale Bitcoin mining has revived and has been reported by official media, which has attracted the attention of decision makers. Second, there has been a similar "Animal Coin Frenzy" in April and May, which has triggered social hot spots and discussions, and OTC retail investors have entered the market, and institutions have aggressively marketed to external retail investors. Third, the United States, the European Union and other countries have introduced corresponding regulatory policies, which has prompted Chinese regulators to learn and follow up.

Industry insiders also pointed out that institutions and projects have become more cautious in marketing to Chinese retail investors, and are more likely to choose to expand overseas. "Normalized supervision" also means that the growth of the Chinese market in the future will be relatively limited, and more games will be sold to existing users.

Welcome to read Wu's selected reports: Huobi exclusive report, Binance exclusive report, Bitmain series, supervision and card freezing series, Filecoin series, currency circle chaos exposure, mining farm supervision dynamics, etc.

Risk Warning

According to the "Risk Warning on Preventing Illegal Fund Raising in the Name of "Virtual Currency" and "Blockchain"" issued by the China Banking and Insurance Regulatory Commission and other five departments, readers are requested to abide by the laws and regulations of their region. The content of this article does not endorse the promotion of any business or investment activities. Investors are requested to raise their awareness of risk prevention. Wu said that the content of the blockchain is not allowed to be reproduced or copied without permission, and violators will be held accountable.