The tide of regulatory rectification is rising and the era of strong regulation in the cryptocurrency and mining circles is coming

Our reporter Zhang Zhiwei

Trainee reporter Zhang Bo Yu Junyi

In May, the ups and downs of the "currency circle" attracted countless attention. Although the crazy encrypted digital currency has huge risks, it cannot stop the gambler mentality of speculators. Encrypted digital currency is difficult to regulate and can easily become a tool for criminals. At the same time, the sharp rise and fall of the currency price is full of huge bubbles and speculative risks. It has no value in itself and will have a negative impact on the domestic financial system and economic system.

In this context, since mid-May, in order to prevent financial risks, regulatory authorities have issued a series of policy documents, directly pointing out the chaos in the cryptocurrency market and further strengthening the supervision and regulation of cryptocurrency. Under strong supervision, cryptocurrency transactions and mining activities have been further standardized and rectified.

Many experts in the industry believe that the heavy-duty regulatory measures that followed in May will not only enable investors to fully understand the nature and risks of encrypted digital currencies such as Bitcoin, but also prevent investors from blindly participating in any form of trading or speculation, thereby better maintaining the stability of the financial order.

Frequent regulatory policies

“Extinguishing the Fire” in the Virtual Currency Market

Since the beginning of this year, the cryptocurrency market has been in a frenzy, with even worthless altcoins being hyped up frequently. The sharp increase in the price of the currency on paper has caused the frenzy to dominate the entire market, with many new investors joining in, and even some investors participating in high-risk contract transactions. However, behind the delusion of obtaining high returns, huge bubbles and risks are accumulating.

Unexpectedly, a storm came. Since May 13, the price of Bitcoin, which had been rising, suddenly fell off a cliff. The industry generally believes that the direct cause of this round of Bitcoin decline is Tesla's suspension of Bitcoin payments. Since then, the price of the currency has been falling all the way, reaching a minimum of less than $30,000. As of June 7, Bitcoin hovered around $36,000, a drop of more than 30% in one month; Ethereum fell from its highest point this year to around $2,700, a drop of more than 20% in one month.

Since May, while the prices of Bitcoin and other cryptocurrencies have fluctuated, China has taken a number of measures to reduce cryptocurrency-related activities in the country, on the one hand, strengthening the supervision of cryptocurrency transactions; on the other hand, cleaning up domestic mining activities. It can be seen that China has comprehensively rectified the cryptocurrency and mining industries.

On May 18, the China Internet Finance Association, the China Banking Association, and the China Payment and Clearing Association jointly issued the "Notice on Preventing the Risk of Virtual Currency Trading Speculation", which "cooled down" the cryptocurrency market and clearly stated that financial institutions, payment institutions and other institutions are not allowed to conduct cryptocurrency-related businesses. On the same day, the Inner Mongolia Development and Reform Commission issued the "Notice on the Establishment of a Reporting Platform for Virtual Currency "Mining" Enterprises", which comprehensively accepted letters and visits and reports on four types of cryptocurrency "mining" enterprises. Within one day, two notices directly pointed to cryptocurrency, sending a signal of strict supervision.

On May 21, the Financial Committee of the State Council made a rare statement, pointing out in the meeting that "we must crack down on Bitcoin mining and trading, and resolutely prevent individual risks from spreading to the social field." This once again clarified the financial regulatory authorities' strict regulatory attitude towards Bitcoin, and the cryptocurrency market fell again.

After the State Council Financial Committee spoke out, Inner Mongolia took the lead. On May 25, the Inner Mongolia Development and Reform Commission issued a notice on soliciting public opinions on the "Eight Measures of the Inner Mongolia Autonomous Region Development and Reform Commission on Resolutely Cracking Down on and Punishing Virtual Currency "Mining" Behavior (Draft for Comments)", strengthening the crackdown and punishment efforts and building a long-term supervision mechanism; on May 27, the Baotou City Energy Consumption Dual Control Emergency Command Office issued the "Notice on Accepting Letters and Reports on Problems of Virtual Currency "Mining" Enterprises and Individuals", stating that it would fully accept letters and reports on problems of encrypted digital currency "mining" enterprises and individuals.

Industry insiders generally believe that there is a huge bubble in the current cryptocurrency market. Since May, a series of actions taken by regulatory authorities will play a positive role in preventing financial risks, protecting investors' interests and maintaining normal market order.

Qi Haishen, president of Beijing Teyi Sunshine New Energy, said in an interview with the Securities Daily that the biggest feature of encrypted digital currency is decentralization, high anonymity, and global circulation, which makes it difficult to be regulated and cannot be tracked through the flow of funds, thereby circumventing foreign exchange supervision. Therefore, encrypted digital currency can easily become a tool for money laundering and capital flight, and the sharp rise and fall of trading prices are full of speculative risks, resulting in a large amount of funds flowing into the encrypted digital currency market.

"Cryptocurrencies represented by Bitcoin have problems such as inefficient payment transactions and high energy consumption in mining, and have always been widely criticized. In addition, the sharp volatility of cryptocurrencies themselves makes them difficult to use as a store of value and a yardstick of measurement." Zhou Maohua, an analyst from the Financial Markets Department of China Everbright Bank, told the Securities Daily reporter.

Overall, strict supervision will continue. Entering June, Hainan also issued a risk warning, and various departments continued to maintain high pressure on "virtual currency" transactions, initial coin offerings (ICOs) and disguised ICOs, and will use a combination of on-site interviews, administrative investigations, website closures, criminal case filings and other means to crack down on them. In addition, last weekend, Weibo also banned the Weibo accounts of cryptocurrency big Vs such as Trader Xiaoxia and Fat House Bitcoin. The relevant page shows that the account is now unavailable for viewing due to complaints of violating laws and regulations and relevant provisions of the Weibo Community Convention.

Mining companies "going overseas"

Or it may become a general trend

Domestic regulatory efforts on encrypted digital currencies are being strengthened to a new level, which has also prompted a new round of rectification in the currency and mining circles.

In terms of cryptocurrency trading platforms, BitMart, Matcha, Huobi and many other trading platforms have recently announced restrictions on new Chinese users from participating in contract trading. BitMart announced that due to policy adjustments in mainland China, mainland China is now a restricted area for BitMart services, and BitMart will suspend contract trading services for all Chinese users. Any user with a Chinese mobile phone number or whose account registration information is shown as Chinese will be restricted from contract trading on BitMart.

According to data from Bitcoin Home, as of June 7, the total amount of liquidation in the last 30 trading days exceeded US$30.6 billion. Investors participating in cryptocurrency contract trading are extremely risky and can easily cause digital asset losses. Therefore, trading platforms responded to regulatory policies and restricted domestic users from participating.

As for cryptocurrency mining companies, several mining pools and related companies are divesting domestic related businesses. BitDeer and Mars Cloud Mine have announced that in order to actively cooperate with the regulatory spirit of relevant countries and regions, they will block all IP addresses in mainland China to further ensure that the platform does not provide services to residents in mainland China. Well-known mining pools such as Huobi Mining Pool and Litecoin Mining Pool have also suspended the provision of mining machine hosting and other related services in mainland China. In addition, according to multiple media reports, cryptocurrency mining in Inner Mongolia, Xinjiang, Sichuan and other places has begun to be stopped, waiting for the implementation of subsequent policies.

Industry insiders generally believe that it is an inevitable trend for mining companies to "go overseas". On the one hand, it is beneficial to energy conservation and environmental protection in the places where they move out, and it is beneficial to reduce carbon emissions; on the other hand, it is also beneficial to the price of domestic graphics cards, hard drives and other accessories to return to normal.

Qi Haishen pointed out in an interview with the Securities Daily reporter that "the computing power of Bitcoin in China accounts for more than half of the world's total (some mines are disguised as big data centers), and domestic cryptocurrency mining activities are extremely active. If the country does not take countermeasures, the energy consumed by Bitcoin will generate a large amount of carbon emissions. This is not in line with the goals of carbon neutrality and carbon peak."

Qi Haishen further stated that the previous excessive enthusiasm of cryptocurrency miners and speculative traders directly led to a mismatch in production capacity in the integrated circuit and semiconductor industries (including chips, graphics cards, hard drives, etc.), exacerbating the "chip shortage" and bringing many unfavorable factors to the development of the industry that was already seriously short of chips. It has already had a negative impact on the environmental health and orderly development of the market.

"It is expected that the mining industry in China will basically disappear completely in the future. Previously, it was mainly because the relevant regulatory authorities did not make a clear statement, which led to the abnormal development of the mining industry. But now its regulatory attitude has been clear, and with the digital RMB about to take the stage, the circulation of encrypted digital currencies and mining activities in China will gradually disappear." An Guangyong, an expert from the Credit Management Committee of the All-China Mergers and Acquisitions Association, told the Securities Daily reporter.

Zhou Maohua suggested that in order to maintain the status of the RMB, the interests of investors and the normal order of the market, it is necessary to speed up the filling of regulatory gaps, and regulatory authorities and financial institutions should work together to improve regulatory efficiency; and by increasing publicity, investors should be more aware of the risks of speculation in encrypted digital currencies.

It is worth noting that since Bitcoin and other encrypted digital currencies are derived from blockchain technology, some people believe that encrypted digital currencies are equivalent to blockchain technology. However, they cannot be confused with each other, and equating them is a misconception.

"Bitcoin is the first application of blockchain and is also known to the public because of Bitcoin. But a number of encrypted digital currencies represented by Bitcoin are by no means equivalent to blockchain." Zheng Lei, director of the Economic Behavior and China Policy Research Center of the International New Economy Research Institute, said in an interview with a reporter from Securities Daily.

"China needs to attach importance to blockchain and treat it as a project rather than just limiting it to encrypted digital currency." Cai Wei De, director of the Digital Society and Blockchain Laboratory of Beihang University and founder of Tiande Chain, told the Securities Daily reporter that blockchain is a breakthrough in domestic core technology. In fact, blockchain can change operating systems, networks, databases, applications, related infrastructure, etc., which will bring about tremendous changes in the future.

The reporter noted that on June 7, the Ministry of Industry and Information Technology and the Office of the Central Cyberspace Security and Informationization Commission issued guidance on accelerating the application of blockchain technology and industrial development. The opinions proposed that by 2025, the comprehensive strength of the blockchain industry will reach the world's advanced level and the industry will take shape. Cultivate 3-5 backbone enterprises with international competitiveness and a group of innovative leading enterprises, and create 3-5 blockchain industry development clusters. The blockchain standard system is initially established. By 2030, the comprehensive strength of the blockchain industry will continue to improve and the scale of the industry will further expand.

This means that blockchain has become an important support for building a strong manufacturing and cyber power, developing the digital economy, and modernizing the national governance system and governance capabilities.

Zheng Lei said that the value of blockchain does not lie in the price of digital assets, but in a new mindset of building a trust mechanism with decentralization and consensus technology. For blockchain technology, people should pay more attention to its platform attributes. At present, blockchain has been included in the scope of new infrastructure. Once it is promoted and applied, it will generate huge value for society. To further promote blockchain innovation, regulators must correctly guide the industry and the public's cognition, correct misunderstandings about blockchain, return to the essence of technology, and guide blockchain technology to support the development of the real economy.