Bitcoin price is consolidating at a high level and entering the 10,000 yuan era. Bitcoin regulation is about to land

▲The many positive factors released by the international market have brought new expectations to the Bitcoin market. The domestic Bitcoin price surge this time is due to the influence of the overseas market leading the rise.

▲ From the perspective of short-term operations, Bitcoin investment faces risk factors such as policy uncertainty, technology, and competition. Investors need to stay sober and invest rationally.

▲ Bitcoin has impacted the centralized model of existing financial transactions. What needs to be solved is how to regulate and how to positively guide its use.

Can you imagine? Bitcoin, which used to be a reference to gold, has now completely crushed gold in price. After the daily and US prices of Bitcoin broke through historical highs, the domestic Bitcoin market also hit a record high of 10,000 yuan on May 9, with the highest price of the year reaching 10,777 yuan, with the largest increase of nearly 120%. The price of Bitcoin in the foreign market is even 500 US dollars more expensive than gold per ounce. From the 9th to now, the domestic Bitcoin price has been consolidating at a high level near 10,000 yuan, officially entering the 10,000 yuan era.

Overseas markets led the rise

In fact, the central bank has already entered the domestic Bitcoin trading platform to conduct investigations at the beginning of the year, and the trading platforms have also taken measures to curb Bitcoin speculation. In January, Bitcoin hit the lowest price of the year at 4,902 yuan. Since the domestic mainstream Bitcoin trading platform announced on January 24 that it would charge a 0.2% transaction service fee, my country's Bitcoin trading volume has fallen to the bottom.

Take Huobi as an example. Its trading volume has dropped from hundreds of thousands or even millions of bitcoins per day to only about 10,000 bitcoins per day, and hit a new low of 910.4 bitcoins per day on April 16. Overall, the current domestic bitcoin trading sentiment tends to be rational and calm.

But at the same time, the international market has released positive news. On March 27 this year, the Japanese parliament passed the 2017 tax reform bill, which included the amendment to the Payment Services Act promulgated in May last year, which defines Bitcoin as the latest payment method. In addition, according to Japan's latest Funds Settlement Act, Bitcoin transactions will be exempt from consumption tax. In this regard, Xiao Lei, chief researcher of Golden Wallet, said that the Funds Settlement Act introduced a registration system to manage exchanges engaged in Bitcoin and other virtual currency transactions, which in fact recognized the legality of Bitcoin payments in Japan, bringing new positive expectations to the entire Bitcoin market.

In addition, although the SEC rejected the Winklevoss twins' application for a Bitcoin ETF in March, the Winklevoss twins applied again, and the SEC announced that it would make a decision before May 15 (which has been postponed). "The possibility of the Bitcoin ETF being approved this time is not high, but it is only a matter of time before the Bitcoin ETF is launched, and it is most likely to be launched in the US market first." Xiao Lei believes that once the Bitcoin ETF is launched, it will have a significant impact, which means that the Bitcoin ETF will open its doors to investors as a standardized financial asset like the gold ETF, and formally establish the legal investment status of Bitcoin.

(The U.S. Securities and Exchange Commission rejected the Winklevoss brothers’ application for a Bitcoin ETF in March. Image source: Golden Finance)

"It can be said that the surge in domestic Bitcoin prices this time was due to the influence of overseas markets leading the way." Huobi COO Zhu Jiawei said that the current overseas Bitcoin price is more than 2,000 yuan higher than the domestic price, and Huobi's current daily trading volume is only 0.3% of the peak at the beginning of the year. China is no longer the largest market for Bitcoin transactions, and the dominance of Bitcoin prices has shifted from China-dominated to overseas-dominated.

(Huobi COO Zhu Jiawei Image source: Golden Finance)

According to the data from Huobi Blockchain Research Center last week, Japan and South Korea have become the world's largest trading markets. In the transaction of legal currency against Bitcoin, the Japanese yen ranks first with 46.4%, the US dollar ranks second with 26.4%, and the RMB ranks third with 10.5% of the world. As my country's Bitcoin transaction volume previously accounted for more than 80% of the global market, the current transaction level shows that the domestic Bitcoin market has cooled down.

There is a short-term callback pressure

Driven by the international price of Bitcoin, the gradually widening price difference has led to the continued existence of some domestic demand, and the demand for compensatory price increases has been gradually released. Xiao Lei believes that another reason for the rise in domestic Bitcoin prices is that since the central bank entered the trading platform for supervision, the demand for Bitcoin has been suppressed, but because many investors still have the desire to speculate on Bitcoin, the domestic over-the-counter market has gradually developed. This market is a regulatory blind spot, and over-the-counter transactions are becoming more and more active. Demand has begun to be released again, which has also played a role in fueling the domestic price of Bitcoin.

"Due to the drastic price fluctuations of Bitcoin, it is difficult for many speculators to become completely rational. Some of these speculators with very strong speculative demand have moved to the over-the-counter market and choose to trade on WeChat, QQ groups, etc." Xiao Lei said that it is easy to buy Bitcoin in China, but due to restrictions on withdrawals, it is difficult to cash out, so the current price may be higher than the actual price.

(Xiao Lei, chief researcher of Golden Wallet. Image source: Golden Finance)

According to industry insiders, the three major domestic trading platforms still cannot withdraw coins, blocking the flow of Bitcoin in the global market. It is difficult to make a profit by buying low and selling high across borders. In this regard, Xiao Lei also believes that although the arbitrage space seems relatively large, it is difficult to operate. "For example, speculators want to buy coins at a low price from China and then sell them at a high price in the international market. It seems to be a huge profit, but on the one hand, the coins bought at a low price cannot be withdrawn and cannot be sold abroad; on the other hand, the coins bought in the over-the-counter market can be withdrawn, but the price is already similar to that of the international market, so there is not much arbitrage space. More importantly, this kind of cross-border arbitrage violates China's capital control regulations and there are great legal risks." Xiao Lei said.

"At present, the short-term increase in Bitcoin is too large, and in the next period of time, if the Bitcoin ETF is rejected again, the dream of Bitcoin entering the mainstream investment market will be temporarily shattered, which will have an impact on short-term prices." Xiao Lei judged that the possibility of Bitcoin ETF being approved is not very high, so the price of Bitcoin has a high risk of falling in the future.

Zhu Jiawei also pointed out that although he is optimistic about the long-term prospects of Bitcoin, from a short-term perspective, Bitcoin investment faces risk factors such as policy uncertainty, technological risks, and competitive risks. Investors need to remain sober and invest rationally.

Regulatory action is about to fall

"What Bitcoin needs to solve is the problem of how to regulate it and how to guide its use in a positive way, rather than how to eliminate it, because with the current level of technology, it is almost impossible to eliminate Bitcoin." Xiao Lei said that Bitcoin has impacted the centralized model of existing financial transactions and provided a good case for the future development of national-level digital currencies and their application in banking, securities, insurance and other fields.

"In the future, the central bank may clarify some red lines, such as strengthening supervision in anti-money laundering, financing and currency lending, to prevent Bitcoin from becoming a purely speculative financial asset." Xiao Lei believes that what people are most worried about is the illegal transfer of assets using Bitcoin, and they are also very concerned about the leverage issue of Bitcoin transactions. However, if the Bitcoin market is to truly develop in a standardized manner, it is also necessary to affirm the status of large exchanges and attract most transactions to trading venues. In this way, the main focus can be placed on regulating trading venues. Otherwise, if transactions on large trading platforms are prohibited, most transactions will be transferred to the OTC market, making it more difficult to regulate.

Original title: The Right and Wrong of Bitcoin

Author: Li Jing, reporter of China Economic Net