The volatility in Bitcoin has exceeded 70% in half a month. The routines of Bitcoin "in the arena" are deep.

In just half a month, Bitcoin went from a crazy rise to a panic plunge, with a fluctuation range of more than 70%, and was once again hit by the regulatory storm.

"Previously, the daily trading volume of major trading platforms was as high as 2 to 3 million bitcoins, and the highest was 6 million. But now it has dropped below 1 million, which is more serious than a halving." On the evening of the 16th, Bitcoin investor Li Yaojun lamented to the Economic Herald reporter that after the launch of the central bank-led investigation, some business of the trading platform has been suspended and market transactions have reached a freezing point.

The Economic Herald reporter learned from an interview that among the three major bitcoin trading platforms in China, Bitcoin China has recently issued an announcement to suspend the provision of loan and borrowing services, and the related businesses of Huobi.com and OKCoin have also come to a standstill. Some interviewed bitcoin market insiders said that the loan and borrowing business can increase the investor's capital leverage by 5 times, which is one of the important driving forces of the previous market boom. The suspension of related businesses is likely to be the first fire of the regulators.

There is also news from a Bitcoin trading platform that the investigation team has asked the trading platform to provide a report on its operational details and asked questions such as the platform's positioning, whether a license is required, and how individuals can withdraw cash.

"The current domestic bitcoin trading market has loopholes in fund custody, anti-money laundering and information disclosure, which need to be improved urgently." Chen He, a professor at the School of Finance of Zhongnan University of Economics and Law, told the Economic Herald on the 17th that as the trading of virtual currencies such as bitcoin heats up, related risks are also accumulating significantly, which has attracted the attention of regulators. In order to solve this financial risk, it is urgent to bring trading venues under the supervision of local financial departments and promote the introduction of industry management regulations.

Cryptocurrency traders' accounts lost nearly 30% in half a month

In the dimly lit room, a large desk with three computers occupied nearly half of the space. Scattered clothes were spread on the bed, and on the small table next to it there were leftovers that had not been cleaned up yet. The smell of greasy leftovers mixed with the pungent smell of the half-smoked cigarette in his hand filled the air. However, Li Yaojun was able to concentrate on staring at the K-line chart on the computer screen, and from time to time he exchanged his views on the market with his friends in the QQ group.

"I haven't had a full night's sleep this month. I've been watching the market most of the time." Li Yaojun said that as a Bitcoin speculator with little investment experience, the market volatility since the beginning of the month has made him nervous. "When the price of a single coin rose from 6,800 yuan to 8,800 yuan, I felt like I was going to become a millionaire, but then the market only took one round of decline to bring me back to square one. Not only have I not made any money, my account funds have lost 27% compared to the beginning of the month."

The Economic Herald reporter noticed that after Bitcoin hit a record high of 8,895 yuan on the 5th of this month, it suddenly experienced a "flash crash" trend, dropping to around 6,000 yuan on the same day, with the largest drop exceeding 30%. Subsequently, although Bitcoin adjusted back to nearly 7,000 yuan, market confidence had been dispersed, with both the 6th and 7th opening and closing lows, and falling sharply again on the 11th and 12th, with a monthly drop of more than 45%.

"The attention from regulators has sent a signal of regulating the market, but the uncertainty of future regulatory policies, coupled with high prices, has led to an increase in selling," said Guo Qi, an internet finance analyst at Guochuang Zhanbo.

The Economic Herald reporter noticed that on the 6th of this month, after the Shanghai headquarters of the People's Bank of China issued an announcement about meeting with the main persons in charge of Shanghai's Bitcoin trading platforms, later that day, the Beijing Operations Management Bureau of the People's Bank of China also issued an announcement stating that it had met with the main persons in charge of Bitcoin trading platforms such as Huobi and OKCoin, requiring them to conduct strict self-inspections in accordance with relevant laws and regulations and carry out corresponding cleanups and rectifications.

"In fact, this situation occurred in 2013," said Li Yaojun. At that time, Bitcoin's year-to-date increase exceeded 900%, but then the central bank issued a "Notice on Preventing Bitcoin Risks", stating that Bitcoin is not issued by monetary authorities, does not have monetary attributes such as legal tender and compulsory nature, and is not a real currency. Subsequently, the market plummeted, falling from a high of 8,000 yuan to around 900 yuan in early 2015.

Li Yaojun said that he started trading in the second quarter of 2014. Although he did not personally experience the crash in 2013, every time he saw the "big negative line" on the candlestick chart, he would always remind himself to strengthen risk control. "But as the market improved, especially the three consecutive months of big positive lines in the fourth quarter of 2016, I was too optimistic and ignored the lack of legal recognition of Bitcoin in China. I blindly chased high prices and eventually learned a lesson."

Leverage tools bring greater risks

It is worth noting that although the timing of the two Bitcoin crashes were both related to the attention of regulators, in the view of the market investors interviewed, the practice of domestic trading platforms providing leveraged funds to investors after 2014 was the important driving force behind the market's sharp rise and fall.

"I remember that in 2014, several major Bitcoin platforms began to promote the business of borrowing and lending coins." Peng Yue, a Bitcoin investor, told the Economic Herald that the so-called borrowing and lending business is just like the A-share financing and securities lending business. Investors only need a small amount of funds to obtain several times the funds or Bitcoins for long or short positions. "Generally, a principal of 10,000 yuan can apply for 40,000 yuan, which is a five-fold increase."

The amplification effect of funds has increased market volatility, thereby attracting more funds to participate. For example, a major domestic trading platform only maintained a monthly trading volume of one or two million bitcoins in 2014, with a transaction amount of more than 10 billion yuan. However, by the end of 2015, the monthly trading volume had soared to more than 40 million. Calculated at the price of about 2,500 yuan per bitcoin at the time, the transaction amount exceeded 100 billion yuan.

Li Yaojun believes that while exchanges provide leverage tools, many OTC institutions have also begun to provide Bitcoin margin trading services, further increasing the amount of funds in the market. "The reason why I suffered a huge loss this time is also because I added 2 times leverage."

"The exchange should have long been aware of the risks brought by leverage tools, and only promoted this business in consideration of its own profits." Peng Yue said that the leverage tool's amplification effect on funds has increased the exchange's commission income while increasing market activity. It is reported that the daily interest charged by the relevant platform for capital allocation is as high as one thousandth of the principal, which is equivalent to an annualized interest rate of about 36%.

However, after the regulators launched an investigation into the trading platform, the above-mentioned leveraged financing business was suddenly suspended.

On the 12th, the Bitcoin China website issued an announcement stating that it had suspended its loan and coin lending business; staff at OK Coin Bank stated that financing and coin lending have been suspended for now, and only repayment operations can be carried out.

"This should be the beginning of the regulators' rectification of trading platforms." Peng Yue analyzed that the sharp fluctuations in the stock market, futures market, bond market and other markets in recent years have all been caused by leveraged funds, and the exchanges are likely to take the initiative to reduce risks under the instruction of the regulators. In this regard, the Economic Herald reporter called Bitcoin China, OKCoin, and CoinNet, the three largest domestic Bitcoin trading platforms, on the 17th, but no response was received from the three platforms as of press time.

However, Bitcoin China CEO Li Qiyuan recently responded to the issue of the central bank and other institutions entering the market for inspection and stated that the regulators and exchanges have discussed basic issues such as "handling fees, leverage, lending, price fluctuations, etc."

A trading institution ran away due to a repayment crisis

Of course, in addition to the risks of leveraged trading, this sharp rise and fall also puts the security of Bitcoin trading to the test.

"A trading institution ran away due to a payment crisis." Li Yaojun said that the name of this trading institution is "Bitcoin Asia Lightning Trading Center", which provides Bitcoin wealth management services for customers, that is, customers deposit Bitcoin here and receive interest on schedule, but starting from January 5, the customer account was suddenly closed and the center has not responded. In this regard, the Economic Herald reporter also tried to contact the center many times, but no one responded to the phone and WeChat found.

In addition, some investors told the Economic Herald that during the market shock on January 5, Huobi.com was temporarily unable to log in, causing some investors to suffer heavy losses, and a similar situation occurred on the website on January 7. In this regard, Wu Xing, the media director of the trading platform, admitted that both times were technical failures, caused by a sudden increase in trading volume, resulting in bandwidth congestion and slow system response.

The Economic Herald reporter also learned in the interview that although Bitcoin has always been known for its "security", in fact, Bitcoin thefts have occurred in multiple exchanges, resulting in huge losses for trading platforms and investors.

For example, Bter, a trading platform registered in Jinan, announced in early 2015 that 7,170 bitcoins stored in offline wallets were stolen in a single transaction. It is estimated that the platform alone will suffer a loss of millions of dollars. Although the platform later stated that it would bear all losses and repay the stolen bitcoins to users in batches, as of now, more than a year has passed, and some investors still say that they have not received full compensation.

In this regard, the Economic Herald reporter also contacted the platform on the 16th. The staff on the phone said that its executive director Han Lin was still abroad and could contact other personnel for a reply. However, as of press time, the Economic Herald reporter had not received a reply.

"There is a gap in the domestic legal characterization and supervision of virtual currencies, which makes transactions such as Bitcoin contain greater risks. On the small hand, investors' funds are difficult to protect if they only rely on honest transactions; on the big hand, it will also have an adverse impact on foreign exchange management and liquidity regulation. Therefore, it is necessary to improve and strengthen the supervision system of Bitcoin trading platforms." Chen He said that the investigation led by the central bank this time will help the virtual currency market represented by Bitcoin get back on track and establish a good trading order.

However, Chen He also said that considering that virtual currency trading is an emerging field globally and domestic industry technical standards are unclear, it will take a long time to build a regulatory system. It will be more effective to establish local financial departments to supervise trading platforms. "At the same time, promoting industry management methods and establishing industry associations can also improve the stability of industry development, which is a top priority."