Post-521 review: What are the upper and lower limits of the policy? Real news and rumors about short selling

Wu said author | Colin Wu

Editor of this issue | Colin Wu

On the evening of Friday, May 21, the Financial Stability and Development Committee of the State Council (hereinafter referred to as the Financial Committee) held its 51st meeting, calling for a crackdown on Bitcoin mining and trading activities and resolutely preventing individual risks from spreading to the social field.

Subsequently, panic spread in the Chinese market, and the price of Bitcoin fell from a high of around $41,000 to a low of $31,390; Ethereum fell to a low of $1,758, and all kinds of altcoins were almost halved. OKB and HT, the two major platform tokens, led the decline, exceeding 50%.

The core reason for the continued volatility and decline is that the next steps for implementing the policy are still unclear. Against this background, short-selling groups continue to spread and amplify rumors, causing market panic.

1. Policy limits

Wu said that blockchain has conducted an analysis before, pointing out that the level of this order is higher than ever before, but also pointed out some difficulties in the implementation of the policy, such as the ban on Bitcoin and mining has no legal basis, and the exchange entities have moved overseas and it is difficult to exercise long-arm jurisdiction. So far, apart from this sentence in the meeting, there has been no actual policy information released, including the front-page article of the Economic Information Daily.

The upper limit of the current policy: it may be a joint order from multiple ministries and energy-related central enterprises (similar to 94) to prohibit all cryptocurrency mining. As for only banning Bitcoin mining, and not banning other cryptocurrencies such as Ethereum, FIL, and CHIA, basically don't have any illusions. One sentence from the meeting cannot include too much. If the subsequent details are implemented, other types of mining will definitely be included. In the trading field, all banks and other institutions are prohibited from providing services, all promotional activities are prohibited, and strong law enforcement agencies are cooperated to crack down on them. This has been relatively clear in the documents issued by the three associations under the central bank, but there is a lack of implementation of the joint crackdown by multiple ministries.

The lower limit of the policy is that through the lobbying of local governments, Beijing has realized that compliant mining does not affect financial stability and is helpful in absorbing abandoned water and electricity. Therefore, the policy boundary is limited to cracking down on illegal and non-compliant mining activities, and using market-based behavior to limit high-energy mining electricity. The current practice will be followed in the trading field. Local law enforcement agencies may increase the crackdown on currency-related businesses, especially the "crime of aiding and abetting trust" will become more frequent.

We don’t know whether the final policy will be implemented at the upper or lower limit. From historical experience, there have been upper limit crackdowns on P2P, and there have also been leniency for some Internet businesses. At present, there is still a great deal of uncertainty, and we are cautiously optimistic about this.

2 What is “real news”

As the phrase "resolutely prevent individual risks from spreading to the social field" says, public opinion crackdown is a routine operation of Beijing, reducing the investment of retail investors and over-the-counter investors in the field of cryptocurrency. However, not all of them necessarily have policy guidance significance, and everyone should strengthen their ability to distinguish the meaning and importance of information.

First, the information released by official institutions has absolute policy guidance significance. For example, the information on 521. Or the speeches of the heads of relevant government departments and the interpretation of media interviews. Secondly, the information released by associations, such as the three associations under the central bank, are generally issued by government departments, but they are not so important that the government departments need to come forward, so the associations issue the documents. Thirdly, the important columns of various central media, such as CCTV News Broadcast, People's Daily editorials, and Xinhua News Agency headlines.

Finally, a large number of official media outlets, sub-newspapers, sub-publications, sub-websites, and various financial media do not have policy guidance significance, especially in the current Internet era where traffic is sought, and clickbait titles are inevitable. However, their collective reports may also indirectly influence the policies of decision makers.

3 Collective manipulation by short sellers?

On May 23, several small news appeared in the market, causing violent turmoil, including Huobi Pool official mall stopped accepting mainland customers, OKEx was ready to stop OKB C2C transactions. The source of the real information was very small, but it was exaggerated to become "China will ban all OTC transactions". Some investors panicked and worried that they would not be able to withdraw funds, so they sold coins, causing the market to plummet, and Ethereum fell to the recent lowest point.

There are rumors in the market that exchanges are colluding with short sellers to manipulate the market, which we believe is not credible. In particular, Chinese exchanges are under government control and are unlikely to be willing to take the risk of manipulating the market. Secondly, due to the previous bull market, the exchange's income is already ridiculously high, and it is impossible for them to rely on market manipulation to make a profit.

The greater possibility is that, because the crypto industry advocates distributed office and free flatness, the control of internal information release is very problematic. Most departments and bosses understand that they should keep a low profile at this time, but some departments, especially the customer service system, do not have such sensitivity. This is also the reason why customer service of Matcha, OKEx, and Huobi first leaked the information and caused panic.

Since the exchange has a short-selling mechanism, rumor-mongering in the crypto industry cannot be caught, so the cost of breaking the law is almost zero. Therefore, short-sellers have been spreading rumors, exaggerating, and even fabricating news. This is almost 100% certain. Driven by profit, short-sellers are full of motivation to spread rumors crazily, but in the face of big emotions, the speed and strength of rumor-refuting cannot keep up with rumor-mongering. The cryptocurrency market environment is special, with great volatility, rumors, confusing information, and no supervision. However, Chaos is a Ladder, putting rumors and emotions in the matrix of evaluation and thinking is also something that smart investors need to measure rather than complain about.

What is the impact of the State Council’s first public request to “crack down on Bitcoin mining, etc.”?

Disclaimer: The author of this article does not trade short-term and holds a small amount of mainstream cryptocurrencies for a long time

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