Bitcoin reforms are in deep water: the scope of the upgrade is wider

Bitcoin has experienced two key turning points since entering 2017. From the perspective of price, the continuous rapid rise turned into a sharp drop on January 5, and after being sluggish for many days, it rebounded strongly in early February; from the perspective of supervision and rectification, the depth and breadth of the rectification exposed in February were even greater than those in January.

In January, after the regulatory authorities in Beijing and Shanghai interviewed and inspected Bitcoin China, Huobi.com, and OKCoin, the three mainstream platforms announced the suspension of Bitcoin spot financing and coin lending.

On February 12, a Bitcoin investor revealed to TechWeb that Bitcoin China's international station BTCC has recently suspended RMB deposits and withdrawals on its futures-like Bitcoin contract trading platform. TechWeb contacted BTCC as an investor to learn about the situation. The latter confirmed in an email that "Professional Trading" has recently suspended RMB deposit/withdrawal functions, and stated that although the US dollar service is still normal, "mainland Chinese citizens" cannot use the US dollar service.

The sharp drop on January 5, and the subsequent collection of transaction service fees from investors, caused the daily transaction volume of the three major platforms mentioned above to drop sharply from millions at the peak to tens of thousands. However, against the backdrop of the sharp drop in transaction volume, the domestic Bitcoin price rebounded strongly in early February, and on February 8, the price once approached 7,600 yuan.

On February 9, an announcement from the Beijing Business Management Department of the People's Bank of China showed that on February 8, the regulatory authorities again interviewed the main responsible persons of nine bitcoin trading platforms in Beijing, including "China Bitcoin", "Bitcoin Trading Network", "Good Bitcoin", "Yunbi", "Yuanbao", "BTC100", "Jubi", "Bibei" and "Dahonghuo", to inform them of the current problems existing on the bitcoin trading platforms.

On the evening of February 9 and February 10, the above-mentioned nine small Bitcoin platforms successively announced the suspension of Bitcoin withdrawals, which is expected to last for one month.

OKCoin and Huobi, two mainstream platforms based in Beijing, also issued the same announcement; while Bitcoin China, based in Shanghai, announced that it would extend the review time for users to withdraw money from the initial 72 hours to 10 days, and stated that "the number of money that each account can withdraw per day may be limited based on risk control requirements."

At this point, the rectification of domestic Bitcoin transactions has spread from the initial three mainstream platforms to almost all platforms in the industry.

The purpose of suspending Bitcoin withdrawals

Bitcoin withdrawal refers to the withdrawal of Bitcoin from the platform. OKCoin and other platforms have not suspended RMB deposits and withdrawals. This means that if customers have liquidity needs, they can sell Bitcoin for RMB withdrawals.

Huobi.com and other platforms said that the reason for the adjustment is that they are working with peers in the industry to formulate anti-money laundering standards for the Bitcoin industry, comprehensively upgrade the platform's anti-money laundering system, and effectively prevent and combat illegal activities such as money laundering, currency exchange, and pyramid schemes using Bitcoin. In order to avoid illegal transactions that may continue before the system upgrade is completed, it has decided to temporarily suspend Bitcoin withdrawals.

Whether there is money laundering and currency exchange is the most frequently mentioned point in official announcements since the regulators intervened in Bitcoin, and there has been controversy in the industry. Those who believe that money laundering and currency exchange may exist believe that investors can buy Bitcoin denominated in RMB on domestic Bitcoin trading platforms, and then sell it for US dollars on foreign Bitcoin trading platforms (or US dollar trading platforms operated by domestic platforms), so that RMB can be converted into US dollars, which theoretically breaks through the restrictions of the foreign exchange policy.

But there are also views that Bitcoin's function of transferring assets and laundering money has been exaggerated.

OKCoin founder and CEO Xu Mingxing has publicly stated many times that the above behavior cannot pass the anti-money laundering mechanism of the trading platform. For example, after buying 1 million worth of Bitcoin in China with RMB, it may take 1-2 months to sell the same value of Bitcoin in the United States. The price fluctuations during this period, coupled with the fact that Chinese Bitcoin is usually 1%-2% more expensive than overseas, make it only theoretically feasible. In addition, the price difference between Chinese and foreign Bitcoin has always been within a constant range. Through the price difference between Chinese and US Bitcoin, it can be analyzed that no one has transferred a large amount of RMB to overseas through Bitcoin.

Despite this, on the evening of February 9, OKCoin and other platforms issued announcements stating that they will strengthen customer identity identification, strengthen fund source and withdrawal review, upgrade anti-money laundering rules, and report suspicious transactions to relevant departments in the future.

Behind the price rebound in early February

On January 5, 2017, the price of Bitcoin in China plunged rapidly after approaching 9,000 yuan, falling by about 30% in less than 10 hours. Since then, the three major domestic platforms have implemented measures such as "deleveraging" and collecting transaction service fees to curb high-frequency operations, cross-platform asset arbitrage and other speculative behaviors, and the transaction volume of each platform has dropped sharply.

However, against the backdrop of a sharp drop in trading volume, the price of Bitcoin in China rebounded strongly in early February, approaching 7,600 yuan on February 8. The US CNBC website said in an article on February 7 that this round of price rebound may be affected by the surge in Chinese foreign exchange speculation after China's foreign exchange reserves fell below US$3 trillion in January.

"The reduction in foreign exchange reserves may have stimulated some safe-haven buying to a certain extent, but it is not the most fundamental reason for the current rise in Bitcoin," Xiao Lei, chief researcher at Gold Wallet, told TechWeb.

In Xiao Lei's view, although the central bank is still conducting an inspection of Bitcoin trading platforms, the People's Bank of China officially established the Digital Currency Research Institute on January 29, 2017. The blockchain-based digital bill trading platform promoted by the central bank before the Spring Festival has been successfully tested. The People's Bank of China will become the first central bank in the world to study digital currency and its real applications. These have led the market to believe that Bitcoin will not be subject to overly strict supervision, and market confidence has been rekindled. In addition, as China strengthens its measures to stabilize the exchange rate, controls on cross-border capital flows have become stricter, and domestic interest rates have risen. Investors' concerns about the capital market, especially the real estate market, have intensified. Funds that have nowhere to go have begun to enter alternative markets, including a significant increase in funds flowing into gold, Bitcoin and other markets in recent days.

The U.S. MarketWatch website quoted market analysts on February 7 as saying that from a global perspective, changes in the political environment in Europe and the United States have increased the attractiveness of alternative assets including virtual currencies, which to some extent contributed to the surge in Bitcoin over the past year.

The changes in the political environment in Europe and the United States mentioned in the article include the growing influence of the "National Front" in American and European political circles. For example, Brexit, Trump's unexpected election victory, and the growing support for the "far right" in France, Germany, Italy, the Netherlands and other countries have made the Western political situation appear extremely unstable.

Some are also betting that the first U.S. bitcoin ETF has a better chance of passing the SEC’s review, thanks in part to Trump’s victory, who has pledged to loosen financial regulations if elected. The SEC is expected to make a decision on whether to approve a bitcoin ETF on March 11.