The central bank summoned the head of the Bitcoin platform to discuss anti-money laundering?

Overnight, the channel for capital outflow by speculation on virtual commodity prices was cut off by regulators.

On January 11, the Shanghai headquarters of the People's Bank of China and the Beijing Business Management Department of the People's Bank of China simultaneously issued announcements stating that the inspection teams of the People's Bank of China have successively entered Bitcoin and Litecoin trading platforms such as "Bitcoin China", "Huobi.com" and "Bihang" to conduct on-site inspections on the trading platforms' implementation of foreign exchange management, anti-money laundering and other relevant financial laws and regulations, and relevant regulations on trading venue management.

It is understood that Shanghai's inspection of Bitcoin China includes "whether it is operating beyond the scope; whether it conducts credit, payment, foreign exchange and other related businesses without permission or license; whether it involves market manipulation; the implementation of the anti-money laundering system, and potential financial security risks"; Beijing's inspection of "Huobi" and "Bihang" includes "the trading platform's implementation of foreign exchange management and anti-money laundering".

According to a reporter from China Times, in just five days in early January, the transaction price of Bitcoin in China broke through the 6,000, 7,000, and 8,000 yuan mark, reaching a maximum of 8,888 yuan per coin, while the foreign dollar transaction price exceeded 1,000 US dollars per coin. The Shanghai headquarters of the central bank issued an announcement at the time, saying that due to the recent abnormal fluctuations in Bitcoin prices, in order to prevent risks and maintain financial stability, it has jointly met with the main person in charge of the Bitcoin trading platform "Bitcoin China" with the Shanghai Financial Office and other relevant regulatory departments, requiring it to strictly comply with relevant laws and regulations and operate in compliance with the law, and urging the platform to conduct self-inspections in accordance with relevant laws and regulations and carry out corresponding rectification.

In the absence of a price limit system, Bitcoin, which is traded 24 hours a day around the world, created a crazy upward trend at the beginning of 2017. The market was shocked and it also attracted strict supervision. A large-scale regulatory network was quickly opened to target the speculation of virtual commodities.

In the view of industry insiders, since 90% of global Bitcoin transactions are concentrated in China, there is no doubt that China has become the largest breeding ground for Bitcoin's "bullish" market. The source of the huge amount of funds pushing up the prices of virtual commodities is questionable. The biggest doubt hanging over virtual commodities such as Bitcoin is: Will the surge of funds behind it become a new channel for capital outflow?

Price "flash crash"

In fact, it is not only the central bank's regulatory departments in Beijing and Shanghai that have taken action to crack down on the skyrocketing price of Bitcoin, but also the State Administration of Foreign Exchange.

"The State Administration of Foreign Exchange also investigated several major domestic Bitcoin trading platforms on January 6, perhaps to understand the recent behavior of transferring assets through Bitcoin to circumvent foreign exchange controls." On January 10, an anonymous person close to the regulatory authorities revealed this to a reporter from the China Times.

The effect of the central bank's action was immediate. Not only did the price of Bitcoin fall rapidly, but some trading platforms were unable to log in, and some investors who chased high prices and increased leverage suffered heavy losses.

"I bought a few bitcoins after New Year's Day, 7,000 yuan each, spending tens of thousands of yuan. I thought it would reach 10,000 yuan. I didn't expect that when the regulatory policy came, I lost a lot. Now I can only hold it. I will sell it when the price goes up again." On January 12, Wu Jia (pseudonym), a bitcoin buyer in Shanghai, told reporters. Not only that, a group of Wu Jia's friends in the circle have also been trapped recently.

The reporter checked the trading price of Bitcoin and learned that, affected by the document on January 6, the trading price of Bitcoin has experienced a round of sharp decline, falling from the highest price to around 6,300 yuan and then falling below the 5,800 yuan mark after a brief consolidation; and after the release of the central bank's two-place regulatory announcement on January 11, the price of Bitcoin fell below the 5,000 yuan mark again, falling to a low of 4,893 yuan, and the US dollar-denominated Bitcoin also fell below 800 US dollars per unit.

"There is a lot of speculative factor behind this wave of skyrocketing prices at the beginning of the year. In addition, behind the speculative component, Bitcoin is the ancestor of digital currency, and major investment banks and financial institutions in the world are researching digital currency. The fact that Bitcoin is now facing the risk of a bubble is also due to the strong support foundation for its generation and development." Financial commentator Yu Fenghui said in an interview.

Another market professional said that it is still unknown whether Bitcoin has adjusted properly, but after this round of adjustments, even the confidence of high-net-worth investors has been hit hard. This is because the value of Bitcoin cannot be clearly quantified, the market is heavily invested, and there is no effective valuation method in the market.

Player's Conspiracy

The China Times reporter learned that data from the three exchanges regulated by the central bank, namely Bitcoin China, Huobi.com and OKcoin, showed that in 2016, China’s bitcoin trading volume accounted for 93% of the global trading volume. In other words, the long funds for bitcoin are in China. However, due to the decentralized nature of bitcoin transactions, even the central bank finds it difficult to find the source, so it can only start with the trading platform.

"The reasons for the crazy rise in Bitcoin prices are still unclear, but judging from the new foreign exchange controls implemented by the central bank and the State Administration of Foreign Exchange in 2017 and the trend of the RMB exchange rate, Bitcoin transactions have become a new channel for capital outflows; because as a global electronic trading commodity, Bitcoin carries more than just the blockchain behind it, but the flow of global funds. Now that the scale of Bitcoin transactions has reached trillions of dollars, it will be difficult to ensure that more and more domestic investors will transfer funds through this virtual commodity if there are no restrictions." On January 10, a professor from Shanghai University of Finance and Economics who did not want to be named told a reporter from the China Times.

In the professor's opinion, it is still unknown how many investors in the country are currently involved in Bitcoin transactions, but what is certain is that there is a force that is constantly pushing up the price of Bitcoin in order to attract more small investors to participate.

"Compared with legal tender, Bitcoin does not have a centralized issuer. Instead, it is generated by calculations of network nodes. Anyone can participate in the production of Bitcoin, and it can circulate throughout the world and can be bought and sold on any computer connected to the Internet. No matter where they are, anyone can mine, buy, sell or collect Bitcoin, and outsiders cannot identify user identity information during the transaction." Zhang Yu (pseudonym), head of a Shanghai startup technology institution, analyzed.

In Zhang Yu's opinion, the reason why Bitcoin is so popular is that it is believed to have a total upper limit. It is composed of a series of complex codes generated by computers. New Bitcoins are created through preset programs. As the total amount of Bitcoin increases, the speed of new coin creation slows down until the total upper limit of 21 million is reached in 2140. The total amount of Bitcoins mined has now exceeded 12 million.

More importantly, Bitcoin can be used to cash out and can be exchanged for currencies in most countries. Users can use Bitcoin to purchase virtual items, such as clothes, hats, and equipment in online games. As long as someone accepts it, Bitcoin can also be used to purchase items in real life.

"In the process of Bitcoin's skyrocketing, the people who benefited the most are undoubtedly the group of people who initially participated in the design and mining of Bitcoin. From the beginning when each Bitcoin was only one dollar to now exceeding 1,000 dollars, the price of Bitcoin has increased 1,000 times in 7 years. If these bulls do not take the opportunity to push up the price, they will not be able to make a profit." Chen Tianjun, a veteran player involved in domestic Bitcoin transactions, said in an interview with our reporter.

Regulatory red lines

The key question is, why did the central bank regulate the three major Bitcoin trading platforms at the beginning of 2017? Are there any close connections between the founders of these platforms and a large number of domestic and overseas science and technology experts? Did the surge in Bitcoin prices first occur in a small circle and then spread to other market speculators?

"We will report real-time transaction data to the regulatory authorities truthfully, but as a platform ourselves, we have no way to monitor the trading behavior because the identities of these traders are confidential and dispersed. If large amounts of funds are involved, we will also report it; but Bitcoin is not bought and sold in units of numbers, it can also be split into 0.1 for trading." On January 13, the person in charge of one of the above-mentioned trading platforms told the China Times reporter.

A market insider who requested to remain anonymous revealed to our reporter that the domestic group involved in Bitcoin transactions is no longer just the original group of technical talents, but also foresighted speculators, as well as funds for criminal money laundering through Bitcoin transactions. The amount of domestic funds is definitely not small. Once more small and medium-sized investors treat Bitcoin as a stock transaction to seek profits, the risks will accumulate.

The Shanghai headquarters of the central bank reiterated on January 6 that according to the Notice of the People's Bank of China, the Ministry of Industry and Information Technology, the China Banking Regulatory Commission, the China Securities Regulatory Commission, and the China Insurance Regulatory Commission on Preventing Bitcoin Risks (Yinfa [2013] No. 289), Bitcoin is a specific virtual commodity, does not have monetary attributes such as legal compensation and compulsion, does not have the same legal status as currency, and cannot and should not be circulated and used as currency in the market. Institutional and individual investors should have a correct view of virtual commodities and virtual currencies, invest rationally, bear their own risks, maintain their own property security, and establish correct monetary concepts and investment concepts.