The countdown to the closure of domestic Bitcoin platforms begins. Beware of the risks of overseas currency speculation

Currently, virtual currency transactions are shifting from offline to over-the-counter markets. Since it is not regulated, the risks are high and the safety of funds cannot be guaranteed, so investment should be cautious. At the same time, the risks of overseas cryptocurrency speculation should not be ignored. In order to allow funds to "go overseas" smoothly, some platforms may be suspected of fabricating fund names, which poses legal risks.

Recently, Bitcoin China issued an announcement stating that it will suspend withdrawal services at 12:00 Beijing time on October 30.

On September 15, domestic bitcoin trading platforms announced that they would shut down trading on September 30 and October 30. So far, the three major domestic bitcoin platforms, Huobi, OkCoin and BTC China, have stopped their deposit services.

On September 4, seven departments issued the “Announcement on Preventing the Risks of Token Issuance and Financing”, requiring all types of token issuance and financing activities (ICO) to be stopped immediately. Next, the regulators acted quickly and domestic Bitcoin exchanges were shut down one after another.

"If the risks cannot be controlled in the short term through non-banning methods, in order to protect ordinary investors who have no risk awareness and risk tolerance, we can only cut the Gordian knot and ban it," said Li Aijun, dean of the Internet Finance Law Research Institute of China University of Political Science and Law.

Following China's strengthening of virtual currency regulation, South Korea and Russia also quickly strengthened their supervision of virtual currencies and ICOs. On October 11, Russia announced the closure of Bitcoin trading websites.

Risks are exposed faster

The surge in ICOs in my country has accelerated the exposure of virtual currency risks.

As early as 2016, the People's Bank of China and five other departments issued the "Notice on Preventing Bitcoin Risks", which clarified the nature of Bitcoin, stating that Bitcoin is not issued by monetary authorities, does not have monetary attributes such as legal tender and compulsion, and is not a real currency. "In terms of nature, Bitcoin is a specific virtual commodity that does not have the same legal status as currency and cannot and should not be circulated and used as currency in the market."

However, the regulators’ repeated warnings about the risks of virtual currencies have not attracted the attention of investors. After the hype of virtual currencies such as Bitcoin, a new way of playing based on virtual currencies has emerged - ICO.

According to the survey data of the Ministry of Industry and Information Technology, there were only 5 ICO projects in my country before 2017. Since 2017, ICO has developed rapidly. As of the first half of this year, the number has reached 27, with a total financing of 2.6 billion yuan. In July and August, the number of ICO projects soared again. As of September 7, ICO funds nationwide involved tens of billions of yuan, and the number of participants in ICO projects exceeded 100,000.

Sun Guofeng, director of the Financial Research Institute of the People's Bank of China, believes that there is no standardized procedure for ICOs, and consumers only judge whether to participate in financing based on the content of the white paper, and most white papers are false and seriously distorted, suspected of illegal fundraising. "Many consumers do not care about the value of the project itself, but only care about the return on investment, resulting in the neglect of risks." Sun Guofeng said that in theory, the value of virtual currency depends on whether the technical solutions promised in the project white paper can be successfully implemented, but many ICO projects have not used the funds raised for the project itself, but have been diverted to other purposes. Even the actual operation of some projects has nothing to do with the content of the white paper, which is suspected of obvious subjective intentional contract fraud.

The wild growth of ICO has inflated the price bubble of virtual currencies. Since the beginning of the year, the price of virtual currencies such as Bitcoin has soared from around 5,000 yuan to a maximum of around 30,000 yuan. What is more serious is that due to their anonymity and decentralization, these virtual currencies have become an important tool for criminals to launder money, engage in illegal transactions, and evade foreign exchange controls.

Countries strengthen supervision

After Chinese Bitcoin platforms announced their closures one after another, countries such as South Korea and Russia also strengthened their supervision of virtual currencies.

In September, the Central Bank of Russia issued a warning about virtual currencies. The Central Bank of Russia said that citizens and legal entities may engage in illegal activities, including money laundering and terrorist financing, through cryptocurrencies. The Central Bank of Russia stated that "given the high risks of the circulation and use of cryptocurrencies, it is not yet time to recognize cryptocurrencies. In addition, any financial instruments denominated in or associated with cryptocurrencies cannot enter circulation or organized trading and clearing and settlement infrastructure in the Russian Federation, and cannot trade with cryptocurrencies and their derivative financial instruments."

On October 11, Russia further announced that it would ban websites related to Bitcoin and other cryptocurrencies within the country.

Recently, South Korea has also stopped ICO. On September 29, the Financial Services Commission of South Korea stated that it would ban all forms of token financing, and said that digital currency may have a serious impact on the regulation of South Korea's monetary system and even the entire economy, and that the inspection mechanism for ICO will be very strict in the future. Currently, South Korea is the country with the most active Ethereum transactions.

Wen Xinxiang, Secretary General of the Monetary Policy Committee of the Central Bank, pointed out that the regulatory content of various countries is mainly concentrated in several aspects: First, classify the legal nature of digital currency and establish its legal status. The US Internal Revenue Service classifies Bitcoin as a taxable asset; in Japan, Bitcoin is defined as a new payment method; Australia "allows digital currency to be regarded as a currency that meets consumption tax." Second, regulate ICO and protect the rights and interests of investors. Third, adopt a licensing system to regulate the legal qualifications of digital currency start-ups. New York became the first state in the United States to officially launch customized Bitcoin and digital currency supervision. Fourth, include digital currency trading platforms and private users in anti-money laundering regulations to prevent money laundering activities.

At present, although different countries have different attitudes towards virtual currencies, more and more countries are beginning to consider strengthening supervision of virtual currencies and ICOs.

Beware of the risks of overseas cryptocurrency speculation

After the rapid regulatory action, the domestic virtual currency market has been effectively regulated. However, at present, virtual currency transactions are shifting from offline to over-the-counter markets, and some investors are turning to overseas cryptocurrency trading.

Xue Hongyan, director of the Internet Finance Center of Suning Financial Research Institute, recently warned of the risks of overseas cryptocurrency speculation, "Except for a few countries that have included virtual currency exchanges in the regulatory framework by issuing licenses, virtual currency exchanges in most countries and regions have no regulatory endorsement and have not put into place preventive measures such as fund custody and virtual currency custody."

Some experts also pointed out that over-the-counter market transactions are actually private transactions. This market is not regulated and cannot guarantee the safety of funds, so investment should be cautious. At the same time, the risks of overseas cryptocurrency speculation should not be ignored. Fund security is only one aspect. On the other hand, in order to allow funds to "go overseas" smoothly, some platforms may be suspected of fabricating fund names, which poses legal risks.

After shutting down the virtual currency trading platform, relevant supervision should not be relaxed. Wen Xinxiang suggested that we should develop regulatory technology and use technologies such as big data, cloud computing, artificial intelligence, machine learning, and blockchain to improve regulatory efficiency. At the same time, we should strengthen international regulatory cooperation. The decentralized nature of digital currency requires regulatory agencies in various countries to coordinate supervision. Member countries should formulate principled regulatory laws and regulations, establish a unified international dispute resolution mechanism for digital currency, strengthen information sharing and exchanges, and jointly combat cross-border digital currency crimes. (Economic Daily China Economic Network reporter Chen Guojing)