Multiple risks accumulate, Bitcoin must be put into a regulatory "cage"

In 2017, Bitcoin regulation began. At the beginning of the year, the central bank issued risk warnings and business regulations to domestic Bitcoin trading platforms through interviews and other means. Industry insiders pointed out that financial risks of Bitcoin transactions frequently appear, and relevant supervision is still in a gray or "three-no" area. The relevant regulatory bodies and regulatory rules need to be clarified and improved urgently.

Trading platforms have hidden risks

Data shows that in 2016, the annual increase of Bitcoin was as high as 160%, far exceeding the gains of stocks and commodities in the same period. Since 2017, the price of Bitcoin has continued to rise sharply. According to media reports, the price of Bitcoin reached a high of $1,105.48 on Tuesday, setting a record high since December 2013.

A Bitcoin trader told the reporter that the popularity of Bitcoin trading stems from its characteristics of no centralized issuer, limited total volume, no geographical restrictions on use, and anonymity. Some players call Bitcoin "currency". Bitcoin was hot in China in 2016, forming a cycle between the continuous entry of speculators and the continuous rise in prices, which is almost essentially different from local exchanges such as precious metals, artworks, stamps and coins.

Previously, the central bank determined that Bitcoin is not issued by the monetary authority, 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.

The relevant person in charge of the central bank pointed out earlier that there are three major risks in Bitcoin trading: First, there is a high risk of speculation. The Bitcoin trading market has a small capacity, and trading is open 24 hours a day without price limits. The price is easily controlled by speculators, resulting in violent fluctuations and great risks. Ordinary investors who blindly follow the trend are likely to suffer heavy losses. Second, there is a high risk of money laundering. Due to the anonymity and geographical restrictions of Bitcoin transactions, its capital flow is difficult to monitor, which facilitates money laundering and terrorist financing activities. Third, there is the risk of being exploited by criminals or organizations. At present, there have been criminal activities such as drug and gun transactions using Bitcoin internationally, and related cases have been investigated and dealt with.

Taking price fluctuations as an example, on January 5, 2017, the domestic Bitcoin price "flash crashed", with a daily drop of more than 25%. In addition, Bitcoin trading platforms generally have illegal leverage transactions such as margin trading, and the general leverage ratio in the industry is about 3 times, and the highest can reach 5 times. Bitcoin trading platforms have also developed futures trading, "Yubibao" trading and other derivative trading functions, which are currently in the gray or "three no" area of ​​supervision.

Chen Sijin, a financial risk management consultant at the Royal Bank of Canada, believes that in fact, more than 80% of Bitcoin is in the hands of the 950 people who entered the market at the earliest stage, and there are not many Bitcoins circulating in the market. Currently, 98% of these Bitcoins with low circulation are in the hands of Chinese people.

"Among them, the three major domestic Bitcoin platforms account for more than 80% of the transaction volume, making Bitcoin like an antique, with only collection value but no circulation value." Chen Sijin said that this shows the characteristics of the Bitcoin Ponzi scheme - investors who enter later give money to those who enter earlier. When 80% of the 13 million "circulating coins" in the market are owned by 950 people, it can be determined that this is a completely closed market with no circulation. Investors should also realize that they are participating in a trading market that is manipulated by others.

In recent years, there have been frequent cases of investors suffering losses due to moral risks such as trading platforms running away or closing down.

According to a 2013 foreign media survey, the average lifespan of a Bitcoin trading platform is 381 days, and the probability of a new trading platform going bankrupt within one year is 29.9%. For users, the closure of a trading platform may result in them not being able to recover their Bitcoins.

) Media statistics in 2014 showed that over the past three years, more than 40 bitcoin trading platforms have been established around the world, and nearly 20 of them have been closed, 13 of which did not give any advance notice before closing, and only 6 provided compensation to users.

On August 4, 2016, the well-known exchange Bitfinex was hacked, losing 120,000 BTC worth more than 72 million US dollars. This cyber theft caused all customers' accounts to lose 36% of the Bitcoin amount.

Countries explore regulatory models

At present, the measures directly targeting Bitcoin regulation in China are mainly two notices: First, on December 5, 2013, the central bank and five other ministries and commissions issued the "Notice on Preventing Bitcoin Risks", defining Bitcoin as a virtual commodity, not a real legal currency, and requiring financial institutions and payment institutions not to directly or indirectly provide customers with other Bitcoin-related services, etc. Second, in mid-March 2014, the central bank issued the "Notice on Further Strengthening Bitcoin Risk Prevention Work", prohibiting domestic banks and third-party payment institutions from providing services such as account opening, recharge, payment, and withdrawal for Bitcoin trading platforms.

From an international perspective, industry insiders point out that the current operation and management of Bitcoin platforms by various countries has gone from the widespread lack of laws and regulations, absence of institutional supervision, and lack of behavioral constraints to active actions and gradual regulation of Bitcoin transactions through legislation.

Among them, the U.S. Commodity Futures Trading Commission classifies Bitcoin as a "commodity", and various states have successively introduced digital currency regulatory laws; Japan has brought Bitcoin exchanges under the jurisdiction of the Financial Services Agency (FSA) of Japan. Bitcoin exchanges must register with the FSA before going online, submit annual financial reports, and go through audit procedures; Australia imposes value-added tax on Bitcoin and requires Bitcoin companies to provide detailed customer information; the National Assembly of Ecuador passed a bill in 2014 to amend the country's existing monetary and financial laws, which prohibits Bitcoin and other decentralized digital currencies; the Central Bank of Bolivia officially ordered a ban on any currency that is not issued or managed by the government in the same year; Iceland's Foreign Exchange Trading Act prohibits people from conducting foreign exchange transactions in the electronic currency Bitcoin.

A regulatory system needs to be established urgently

Industry insiders believe that Bitcoin is a virtual currency with multiple transaction attributes of futures, spot, finance and commodities. At the same time, from the perspective of technology and supervision, Bitcoin itself has the possibility of illegal pyramid selling, money laundering and foreign exchange activities, which may have an impact on China's existing foreign exchange management and payment settlement system. Although the central bank has taken action to regulate it, it has not yet clarified the regulatory body and specific responsibilities to form a complete regulatory system.