"Big firms" have encountered problems one after another, and the cryptocurrency circle is in a state of panic

The anxiety of waiting for OKEx to open withdrawals has not been completely relieved in the past half month. On November 2, Huobi was caught up in the news that a senior executive was "assisting in an investigation." Although Du Jun, the co-founder who just returned to Huobi, said that "everything is normal", the panic sentiment was still reflected in the decline of HT.

The industry turmoil caused by two cryptocurrency asset trading platforms with extensive Chinese-speaking users has pushed the currency circle's panic to a climax. Some platforms have already suspended external promotion work, "It's been too difficult recently." The trading platforms are once again observing China's regulatory actions.

The regulatory pressure on cryptocurrencies did not come suddenly. The wave of card freezing for OTC merchants and users in the cryptocurrency circle in June this year was like a harbinger, followed by local police crackdowns on fraud and pyramid schemes using cryptocurrencies. Later, the news that Zhao Dong, the founder of Renrenbit, was taken away by the police directed the regulatory crackdown to cryptocurrency money laundering.

In October this year, the national legal digital RMB DCEP (Digital Currency Electronic Payment) was piloted in Shenzhen. In this context, the providers of mainstream cryptocurrencies and related services such as BTC, ETH, USDT, etc. are self-deprecatingly called "bandits" in the industry.

Before the popularization of digital RMB, it is not difficult to understand the motivation of supervision to clear illegal activities related to cryptocurrencies and maintain financial stability, and exchanges are the main circulation channels of crypto assets. In a panic, some holders have begun to transfer crypto assets from exchanges to personal wallets that they can control.

Big Firms’ “Black Swan” Events Heighten Panic

On the evening of November 2, news broke in the industry that Huobi Group COO Zhu Jiawei was assisting the police in the investigation. The panic was directly reflected in the price of Huobi's token HT. On that day, HT fell from $3.68 to $3.34, a drop of 9%. In addition, the selling price of USDT in Huobi's fiat currency trading area also fell to 6.2 yuan for a short period of time, and then slowly returned to normal.

After the incident, the co-founder Du Jun, who had just officially announced his return to Huobi, also responded that everything was normal at Huobi and "welcome to test deposits and withdrawals." Huobi's official statement also emphasized that the operation was normal. However, neither party directly responded to Zhu Jiawei's incident.

Before the Huobi incident, another mainstream exchange, OKEx, had been unable to withdraw money for half a month. The adverse market impact caused by the loss of contact due to "some private key holders cooperating with the public security authorities in the investigation" could not be completely eliminated. Although OKEx resumed the fiat currency trading area a week ago, the sell order page is now empty again. Merchants who bought USDT at a low price are also considering how long the period of being unable to withdraw money will last.

On November 3, Beijing News quoted multiple sources as saying that the police in Luliang City, Shanxi Province, had recently taken away several people involved in currency cases. One of them said that the reason Xu Mingxing was taken away by Luliang police for investigation in October was that he was suspected of covering up and concealing the proceeds of crime.

As the mainstream media reported, many trading platforms began to become wary. Some platforms stopped their recent external promotions and activities, fearing that the environment was "not peaceful." Practitioners once again entered a period of observation to pay attention to China's regulatory actions on crypto assets.

After the OKEx incident, Li Lin invited back his old partner Du Jun, who was working and living overseas. At that time, the outside world speculated that this move was to prepare for some potential regulatory force majeure to avoid the transmission of troubles to the group's operations due to personal disadvantages.

Du Jun did not shy away from this. He said in his circle of friends that in order to ensure the decentralized management of private keys, he and Li Lin did not take the same flight before and are not in the same country now.

Regardless of whether Huobi has any senior executives taken away, the two trading platforms with local genes and a large number of Chinese-speaking users are in fact always under regulatory pressure. After all, the main circulation place for cryptocurrencies is trading platforms, and this emerging asset still has many gray areas within the Chinese legal framework, and some criminals have already used encrypted assets to engage in illegal and criminal activities.

On November 3, People's Daily Online published a signed article by BSN Chairman Shan Zhiguang and Red Date Technology General Manager He Yifan titled "Getting to the bottom of it III: Legal Analysis of Holding and Trading "Virtual Currency" in China", pointing out that individuals can purchase and hold "virtual currency" in the country in a relatively legal way, but there is a higher possibility of violating the law in the selling stage.

Among them, Hongzao Technology is one of the initiators of the Blockchain Service Network BSN (Blockchain-based Service Network), and the initiators of BSN also include state-owned institutions such as the National Information Center, China UnionPay, and China Mobile Design Institute.

This article was also interpreted by the crypto asset industry as a signal of some kind of regulatory action.

The police have been cracking down on illegal currency-related activities for nearly half a year

The signal may have appeared long ago.

In the wave of freezing of bank cards of people in the cryptocurrency circle since June this year, the news that Zhao Dong, the founder of Renrenbit, was taken away by Hangzhou police was impressive enough. As of October, online telecommunications fraud, pyramid schemes, and money laundering cases involving cryptocurrency have never stopped.

On May 31, Shandong local media Luwang reported that "more than 4 million yuan was defrauded from digital currency investment. Tai'an cracked a major telecommunications network fraud case and 17 suspects were arrested."

On the afternoon of June 5, Sun Xiaoxiao, a well-known Bitcoin miner, said on Weibo that his bank card was also frozen. "This time it was frozen by the Economic Investigation Bureau of a city in Guangdong Province. There are quite a lot of people involved, probably several thousand people." Prior to this, Guangzhou Daily reported that the Anti-Fraud Center of the Humen Public Security Bureau of Dongguan City cracked 82 telecom fraud cases, arrested 134 telecom network fraud suspects, and destroyed 36 telecom fraud gangs, with a total amount of about 8 million yuan involved.

On July 30, Xinhua News Agency reported that in accordance with the deployment of the Ministry of Public Security, the public security organs filed a case to investigate the Plus Token platform network pyramid scheme case, and successively arrested all 27 major criminal suspects who had fled abroad and 82 core members of the case. This case is the first network pyramid scheme case cracked by the public security organs using Bitcoin and other digital currencies as the trading medium, involving more than 2 million participants, more than 3,000 levels of hierarchical relationships, and the total value of digital currencies involved in the case exceeds 40 billion yuan. This case also characterized Plus Token, which is notorious in the currency circle, as a "large-scale transnational network pyramid scheme organization entrenched at home and abroad."

In October, another pyramid scheme involving cryptocurrency also made new progress. On October 27, the Intermediate People's Court of Yancheng City, Jiangsu Province, released the "Second-instance Criminal Ruling of the WoToken Major Virtual Currency Pyramid Scheme Case", which also brought the case to a close. The ruling shows that from July 2018 to October 8, 2019, the Wotoken case involved more than 700,000 people and involved more than 7 billion yuan in funds.

One after another, the police have cracked down on illegal currency gangs, which has shown that the regulators are not tolerant of crimes involving crypto assets. It is not surprising that the bank cards involved in these black industries have been frozen. Among those whose cards have been frozen, some have not yet been unfrozen. A user Tiger (net name) said that when he asked the police when the cards would be unfrozen, the answer he got was always "I don't know, wait."

Illegal activities have affected crypto assets, and related trading platforms have also made efforts.

On August 5, Huobi Global updated the "OTC Trading Rules", which detailed the abnormalities of buyers and sellers and the manifestations that triggered risk control, as well as the measures that the platform would take for abnormalities. Huobi tried to establish intelligence information from the source of the black industry, identify suspicious user information, output risky black addresses, etc. It clarified the principles that buyers and sellers in the OTC trading area should follow. The risk control review team undertook the review and processing of relevant black industry accounts.

Not only Huobi, but OKLink, a subsidiary of OKEx Group, has also launched the "On-Chain Sky Eye" system, attempting to provide solutions for "anti-money laundering and other regulatory and law enforcement scenarios" through big data analysis and tracking the flow of black cryptocurrencies and black addresses.

It is not difficult to see from the actions of exchanges and related companies that active prevention and control of illegal activities and money laundering using cryptocurrencies is a regulatory requirement that exchanges need to pay attention to, and it is also a source of pressure.

Mainland China strictly guards against financial risks, Hong Kong, China releases licensing signal

As regulators are cracking down on illegal activities using crypto assets, the state-backed digital RMB DCEP (Digital Currency Electronic Payment) has been launched after years of research and development.

Shenzhen Cyberspace Administration disclosed that as of 8:00 on October 11, the reservation for "Lixiang Luohu Digital RMB Red Packet" ended. A total of 1,913,847 individuals in Shenzhen completed the reservation registration. After that, the individuals who won the lottery can apply for the use of "Digital RMB APP", which means that those who received the RMB red packet were the first to try the use of digital RMB.

DCEP stands for digital currency used for electronic payments. It is issued by the state and its price is directly linked to the RMB. The state-backed nature of DCEP makes it fundamentally different from decentralized cryptocurrencies.

Huang Qifan, vice chairman of the China Center for International Economic Exchanges, explained as early as last year that the significance of DCEP lies in that it is not only the digitization of existing currencies, but also greatly reduces the dependence of transactions on accounts, which is conducive to the circulation and internationalization of the RMB. At the same time, DCEP can realize the real-time collection of data such as currency creation, accounting, and flow, providing a useful reference for the issuance of currency, the formulation and implementation of monetary policy.

In the cryptocurrency circle, optimists once regarded the issuance of DCEP as a positive for the industry. However, from the perspective of issuance method, attributes, scope of use, and functions, DCEP is not the kind of currency that the cryptocurrency circle is used to. When regulators cracked down on behaviors related to crypto assets, BTC, ETH, USDT and related service providers became the targets of the self-deprecating "bandit suppression" in the cryptocurrency circle.

On October 23, the People's Bank of China issued an explanation on the "People's Bank of China Law of the People's Republic of China (Draft for Comments)", emphasizing the legal status of the RMB and the digital RMB, and clearly pointed out the need to "guard against virtual currency risks and clearly prohibit any unit or individual from producing and selling digital tokens (Articles 19 and 22)."

Before the popularization of digital RMB, any digital tokens endorsed by any unit or individual will be subject to legal crackdowns on both the issuance and sale of digital tokens. In the entire draft opinion and explanation, "preventing financial risks" is mentioned frequently.

Some industry insiders pointed out that, especially this year under the influence of the COVID-19 pandemic, the global economy has continued to decline and the international environment is full of uncertainties. Under China's overall perspective of seeking stability, the financial market will inevitably also be a focus of supervision.

The financial regulatory hammer first fell on the well-known Ant Group. On November 2, the People's Bank of China, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, and the State Administration of Foreign Exchange held a regulatory interview with Jack Ma, the actual controller of Ant Group, Chairman Jing Xiandong, and President Hu Xiaoming. Ant Group's original plan to list on the Science and Technology Innovation Board on November 5 was suspended.

Financial companies have been criticized by many mainstream media for "entering the market under the guise of technology." Ant Group, which has a wide range of users, also has to comply with regulatory requirements, let alone the cryptocurrency industry?

The only good news in the turbulent cryptocurrency world is probably from Hong Kong. On November 3, mainstream media reported that Ashley Alder, CEO of the Hong Kong Securities and Futures Commission, said that the SFC will announce a new licensing system for virtual asset trading platforms this afternoon to prevent money laundering by any type of virtual asset platform. He pointed out that after the launch of the licensing system, all virtual platforms operating in Hong Kong or targeting Hong Kong investors must apply for a license and be supervised by the authorities.

O'Daily further stated that whether the application for a license can be successful depends on the platform's financial situation, operating experience, risk management, etc. Considering the investment risks, the platform can only provide services to professional investors.

For exchanges that have been claiming to embrace regulation, Hong Kong, China, offers an alternative. But whether in the mainland or Hong Kong, whether the legal framework is clear or unclear, crypto asset trading service providers cannot escape the eyes of regulators.

Amid the panic spread by trading platforms, some people have begun to learn to transfer assets stored in exchanges into wallets that they can control. Crypto asset holders are being taught that assets that are not in their own hands are not theirs. (Fengchao Finance)