Will Bitcoin exchanges be restarted? What Zhou Xiaochuan has to say

Recently, a piece of news about the restart of virtual currency exchanges has been circulating in the cryptocurrency circle. "Officials from the People's Bank of China began to visit the offices of large domestic digital asset exchanges such as Huobi in January this year to discuss virtual currency and other issues with exchange executives." They also believed that Huobi CEO Zhu Jiawei had guessed the signal of relaxation. "(Zhu Jiawei) believes that something is definitely going to happen and China is likely to lift the ban on cryptocurrency trading. To him, it seems that the central bank is collecting information to create a framework and exchanges do not need to worry too much." Subsequently, Zhu Jiawei refuted the rumor in his circle of friends, "(the regulatory authorities) did not come to Huobi in January this year, and (I) did not disclose any information," and called on "everyone not to believe (the rumor)."

Netizens are used to seeing "rumors are facts", so they can't help but be optimistic. If this is true, it will undoubtedly be a major positive for virtual currencies that have been repeatedly hit by bad news. Even if there is only a 1% probability, it is worth looking forward to.

Coincidentally, the central bank governor Zhou Xiaochuan just answered questions related to digital currency and blockchain. It is a good time to take a look and see if we can find any clues of loosening up.

Point 1: In the face of new technologies, supervision is also exploring dynamically

"Technological development is a dynamic process. Everyone is gradually exploring in this process. During the exploration process, it cannot be said that there will definitely be some definite regulatory policy in the future."

From the perspective of supervision, the attitude towards new technologies is changing dynamically. In this process, the regulatory policy has the characteristics of "exploration" and is not static, that is, "future supervision, first of all, is very dynamic, it depends on the maturity of the technology, and also on the final testing, trial and evaluation situation."

From this perspective, the new ICO policy in September 2017 is not a "final decision" and may be reversed. "From the perspective of the central bank, first, we should stop promoting products that are not prudent, and some promising products must also be tested and certified, and only promote them after they are reliable."

So, does virtual currency represented by Bitcoin belong to this promising product?

Point 2: The central bank’s research on digital currency is neither an endorsement of blockchain technology nor an endorsement of virtual currency.

Everyone has noticed that the central bank has also established a digital currency research institute. Since the central bank is researching digital currency, does it mean that virtual currencies such as Bitcoin will have significant practical guiding significance in the future?

"Conceptually, everyone has a different concept of digital currency in their mind. The name used by the central bank for research and development is "DC/EP", DC, digital currency, and EP, electronic payment."

This is a conceptual division. The central bank is studying digital currency. In a broad sense, "what is electronic payment actually? The payment is actually digital something transmitted through mobile communications or other network systems, not paper currency, so electronic payment itself also has the attributes of digital currency."

This means that all non-cash payments fall under the category of digital currencies. “These items can be digital currencies based on blockchain or distributed ledger technology (DLT), or they can be technologies evolved from existing electronic payments.” Blockchain-based virtual currencies are just one type of digital currency. “At present, there are some preliminary classifications of digital currency technology routes internationally, indicating that there may be multiple possible systems.”

At this point, the attitude is very clear. The central bank studies digital currency because it sees the general trend of digital currency replacing cash in the future. "The development of digital currency is inevitable in terms of technological development. In the future, traditional paper money and coins may gradually shrink, or even disappear one day. This possibility also exists."

However, blockchain-based technology is not the only option, and the central bank’s research on digital currency cannot be seen as an endorsement of blockchain technology, nor does it mean an acknowledgement of the future development potential of virtual currency.

Point 3: Overcoming speculative attributes and serving the real economy, "virtual tokens" may not have no room for survival

"We believe that virtual asset transactions need to be handled with greater caution. From China's perspective, virtual asset transactions are not in line with the direction that our financial products and financial services should serve the real economy."

The problem of virtual currency trading is pointed out, which is contrary to the principle of serving the real economy and has gone astray. In addition, the strong speculative nature of virtual currency is also an important reason why regulators do not like it. "We don't like the idea of ​​creating a speculative product that makes people have the fantasy of getting rich overnight. This is not a good thing. Instead, we emphasize serving the real economy."

Of course, it is not a blanket statement. "If you want to develop digital currency, you have to consider whether it can bring efficiency, low cost, and security and privacy protection to consumers and the retail market. In addition, you have to consider the overall situation. This thing should not directly conflict with the current financial stability and the current financial order."

From this perspective, if virtual currency can overcome its speculative nature, follow the principle of serving the real economy, and bring efficiency improvements to consumers and the market, it still has room for survival.

Is it possible for a virtual currency exchange to restart?

"Some things like Bitcoin and other forked products were released too quickly and without caution. If they expand or spread rapidly, they may have a significant negative impact on consumers. At the same time, they may also have some unpredictable effects on financial stability and monetary policy transmission."

In the eyes of the central bank, the problem with virtual currencies such as Bitcoin is that they are difficult to control and highly speculative, and their spread will have a negative impact on investors. The current hotly debated "cutting leeks" in the market is exactly this. Putting aside the problems of Bitcoin and Ethereum, a lot of air coins are just playing the greater fool game, and the whole market is full of speculation.

The root cause of speculation lies in secondary market transactions. In the future, the hope of restarting virtual currency exchanges may be dashed.

At this point, Xu Mingxing, founder of the virtual currency exchange OKCoin, also read Governor Zhou Xiaochuan's speech and came to three conclusions, "1. Blockchain and digital currency are the future; 2. There are short-term problems that need to be solved; 3. What to do in the future is dynamic, let's discuss it together", and stated in the group that "(OKCoin) is ready to donate to the country in the future."

Indeed, even if virtual currency transactions are opened up, it will be the state that is in charge. This statement is very smart.

Where is the way out?

The speech of the central bank governor needs to be savored. My feeling after reading it is that virtual tokens, as a medium for value transfer in the blockchain system, can serve the real economy. As long as the speculative attributes are castrated and the monetary policy system is not disrupted by characteristics such as "decentralization", "anonymity" and "cross-border", there is room for survival.

Earlier, the Internet Finance Association had issued a document naming Xunlei Chainlink as suspected of disguised ICO. After Xunlei decisively cut off secondary market transactions (castrated speculative attributes), it was not stopped, the official website is still there, and the data has been updated. In addition, the listed company 2345 (002195, stock bar) recently launched a blockchain plan called "2345 Planet Alliance Plan", issuing "points stars" similar to Chainlink, which was also not stopped.

It seems that this is the way out.

Author: Xue Hongyan, Director of Internet Finance Center, Suning Financial Research Institute