The “Three Major Associations” reiterate the regulation of virtual currencies. Is a new round of rectification in the cryptocurrency circle coming?

Science and Technology Innovation Board Daily reporter Xu Cihao intern reporter Zhang Yangyang

"Science and Technology Innovation Board Daily" (Shanghai, reporter Xu Cihao, intern reporter Zhang Yangyang) reported that on the evening of the 18th, the China Internet Finance Association, the China Banking Association, and the China Payment and Clearing Association issued the "Notice on Preventing the Risk of Virtual Currency Trading Speculation", reiterating that virtual currencies such as Bitcoin are a specific virtual commodity and should not and cannot be circulated and used as currency in the market. At the same time, it requires financial institutions, payment institutions and other member units not to carry out business related to virtual currencies.

Influenced by this news, the prices of cryptocurrencies fell, with the price of Bitcoin falling from US$45,600 to around US$42,000.

Several interviewees told the reporter of the Science and Technology Innovation Board Daily that the three major associations issued a notice to prevent speculation risks, which may cut off the infrastructure for frequent transactions of virtual currencies by domestic residents, and play a positive role in controlling the speculation of mainland residents. It also shows that for several years, my country's regulatory attitude towards strict restrictions on virtual currencies has remained clear, and the industry may be rectified again.

Reiterate the regulatory attitude towards virtual currency

The announcement of the three associations clearly pointed out that member units such as financial institutions and payment institutions should effectively enhance their social responsibilities, and shall not use virtual currency to price products and services, shall not underwrite insurance business related to virtual currency or include virtual currency in the scope of insurance liability, and shall not directly or indirectly provide customers with other virtual currency-related services, including but not limited to:

Provide customers with virtual currency registration, trading, clearing, settlement and other services; accept virtual currency or use virtual currency as a payment and settlement tool; carry out virtual currency and RMB and foreign currency exchange services; carry out virtual currency storage, custody, mortgage and other businesses; issue financial products related to virtual currency; use virtual currency as an investment target for trusts, funds and other investments, etc. In my country, there are two documents that clearly define the supervision of virtual currency. Previously, the central bank and other ministries and commissions issued the "Notice on Preventing Bitcoin Risks" and the "Announcement on Preventing Token Issuance and Financing Risks" in 2013 and 2017 respectively, clarifying that virtual currency transactions and token issuance and financing platforms are suspected of illegal issuance of securities and illegal fundraising.

Xiao Sa, partner of Beijing Dacheng Law Firm, told the Science and Technology Innovation Board Daily reporter that although the above two documents do not stipulate that it is illegal for individual Chinese citizens to hold Bitcoin, the frequent transactions between Bitcoin and legal currency have seriously affected the economic management order. The operation of non-mainstream digital currencies also threatens the property rights of ordinary people. It is necessary to intervene in a timely manner to prevent overheated speculation in cryptocurrencies from causing price collapse and triggering mass incidents.

Why was this joint announcement issued by the three associations instead of the regulatory authorities?

In this regard, Xiao Sa pointed out that the cryptocurrency circle itself is a gray industry and there is no so-called regulatory authority. The association is an industry self-regulatory organization. Although its announcements or statements do not have legal effect, they are of great reference significance and reiterate my country's regulatory attitude towards virtual currencies.

Especially in civil judgments, the association's announcement will be cited as "industry practice", so it can be predicted that virtual currency-related cases will be affected by this announcement in the future. Thirdly, we must cross the river by feeling the stones. The association's announcement is a preventive measure to let the public know the illegality of virtual currency speculation. If the situation improves, it will be left alone; if the situation worsens, relevant hard laws will come into play.

Is a new round of rectification in the cryptocurrency circle coming?

Since the second half of 2020, the price of Bitcoin has been rising all the way, from a low of $3,800 to a high of $64,000, and the virtual currency market has ushered in a so-called "bull market". This has also caused a rebound in the domestic "cryptocurrency speculation trend", and even in some related criminal cases, a large number of organized pyramid schemes have appeared, which has seriously affected the social management order, involved a large number of people, and involved a particularly huge amount of money, and the social harm is obvious.

The reporter of "Science and Technology Innovation Board Daily" found that there are fiat currency trading areas on trading platforms such as OKEx, Huobi, and Binance. Users can directly buy virtual currencies such as Bitcoin by binding bank cards, WeChat, Alipay, etc. in the form of OTC.

After "94" in 2017, my country's policy prohibited exchanges from directly trading in RMB, so various exchanges set up fiat currency OTC trading areas, similar to Taobao's C2C platform, where transactions are conducted between users and the platform acts as a guarantor.

The specific process is that when a buyer wants to buy virtual digital currency, the platform will "introduce" all sellers who want to sell virtual digital currency to the buyer. The buyer will transfer legal currency to the seller offline through a bank or WeChat, or Alipay. After receiving the money, the online seller will confirm with the trading platform. After confirmation, the trading platform will put the seller's virtual digital currency into the buyer's "wallet", and a legal currency transaction ends here.

The joint announcement issued by the three major associations had an immediate effect. On the evening of the 18th, a wallet service provider "Bitpie" quickly announced the closure of OTC transactions and currency-to-currency transactions.

A few days ago, on April 22, China CITIC Bank took the lead in announcing that in the future, no institution or individual may use the bank's accounts to top up or withdraw transaction funds, buy and sell Bitcoin and Litecoin-related transaction recharge codes, and related transaction funds may not be transferred through the bank's accounts. Once discovered, the bank has the right to take measures such as suspending transactions in related accounts and canceling related accounts.

The joint announcement of the three associations also reminds consumers to enhance risk awareness, establish correct investment concepts, not participate in virtual currency trading speculation activities, and be careful to prevent personal property and rights from being damaged. They should cherish their personal bank accounts and not use them for virtual currency account top-up and withdrawal, purchase and sale of related transaction top-up codes, and transfer of related transaction funds, so as to prevent illegal use and personal information leakage.

Judging from the recent market trends, the price of cryptocurrencies has fluctuated many times due to the "promotion" remarks of Musk and others. Cai Kailong, a senior researcher at the Institute of Financial Technology of Renmin University of China, said in an interview with the "Science and Technology Innovation Board Daily" reporter that this shows that the crypto market is still in an immature stage and supervision will be more urgent.

This is indeed the case. Since April, many countries including the United States, India, Türkiye, South Korea, etc. have successively implemented stricter supervision on cryptocurrency transactions.

Last Monday, the Monetary Authority of Singapore said that investing in cryptocurrencies is risky and not suitable for retail investors. The Monetary Authority will continue to monitor developments in the cryptocurrency space and will regularly review the adequacy and appropriateness of its regulations.