What is the real purpose of the central bank's investigation into Bitcoin trading platforms?

The investigation of major trading platforms actually has the purpose of cooling down the Bitcoin market to prevent large-scale market participation in Bitcoin and the formation of a larger herd effect.

There are actually two purposes for this regulation. One is that as the price of Bitcoin continues to rise, many funds have begun to chase Bitcoin, and even grandpa and auntie have rushed into the market. Various scams under the banner of Bitcoin have occurred frequently. If we do not intervene, many scammers will be more fearless. The investigation of major trading platforms actually has the purpose of cooling down the Bitcoin market to prevent the market from participating in Bitcoin on a large scale and prevent the formation of a larger herd effect. Another is that many half-understood analyses have magnified the function of Bitcoin in transferring assets and laundering money, which has put great pressure on the central bank and other regulatory authorities, and they have to start inspections.

Of course, there are also some problems with the Bitcoin trading platform itself, such as information disclosure, fund security and platform stability. In particular, many of the derivative products developed already have very high risks. If certain thresholds are not set to allow ordinary investors to participate, the risks are huge. For example, leveraged businesses do require a more transparent and stringent risk control system.

It is difficult to make a one-size-fits-all regulation this time, because Bitcoin itself is an experiment, and Bitcoin transactions exist in countries around the world. China cannot unilaterally ban it, and there is no way to completely ban it. At the same time, the central bank also needs research and talents in this area, and needs to cultivate the whole society's understanding of digital currency. In fact, from a certain perspective, the existence of the Bitcoin market is to educate users for the future issuance of digital currency by the People's Bank of China. China is much better than India in this regard. One of the purposes of Modi's "banknote abolition" incident that caused a lot of controversy a while ago was to force everyone to use electronic banking and promote mobile payments.

The current problem is that if some red lines are not drawn, the Bitcoin platform may not know the innovative boundaries of its business, may cross the boundaries from time to time, and may even mislead investors.

The issue of money laundering with Bitcoin needs to be viewed very professionally and seriously. Although Bitcoin itself is decentralized and anonymous, it is not that easy to transfer assets with Bitcoin. First, you have to buy Bitcoin with RMB, and you also have to have a channel and account for cashing out in the international market. In fact, the step of buying Bitcoin is just like opening an account at a securities company to buy stocks. It is very easy to check you. If there is any abnormal transaction, these Bitcoin trading platforms will actively report it, and the platforms dare not take this risk.

Furthermore, to put it bluntly, most of the Bitcoin transactions in China are done by low-level users, who have no motivation or need to transfer assets. If you use Bitcoin to transfer assets, you will face many risks. One is the risk of being reported by the platform; the second is that international market transactions are far less active than domestic transactions, and whether large transactions in the United States and other markets can be quickly converted into cash is a problem; the third is that the price of Bitcoin fluctuates violently, and has fallen by more than 45% in the past 10 days. If you cannot convert it into cash for a while, the loss will be very heavy.

Regarding the prospect of Bitcoin, it may be different from the price of Bitcoin. On January 3, I solemnly warned about the short-term price risk on Weibo (the price had exceeded 7,000 yuan per unit at that time). In fact, judging from the trend, the price of Bitcoin above 5,000 yuan during this fluctuation was completely driven up by the successors (this view was expressed during the live broadcast of Sina's Bull Eye Kanpan program on the afternoon of January 6, when many people believed that it would not fall below 5,000).

As a digital currency experiment, Bitcoin will definitely exist for a long time, and no country or organization has the ability to eliminate Bitcoin. However, Bitcoin trading platforms also need to understand that Bitcoin cannot replace legal currency for the time being, nor can it have complete currency attributes. However, if it is a virtual asset transaction and observed from the perspective of technological development, Bitcoin trading platforms have a continued meaning of existence.

If the regulators finally suspend these large trading platforms, it will be even more difficult to regulate, because there is no way to prohibit Bitcoin trading. If it is not concentrated on a few platforms, it will go underground. At that time, it is more likely to have fraudulent platforms, which will make supervision more difficult and cause more damage to the entire society. What is needed now is to make the data information of the trading platforms transparent and shared, require the trading platforms to report and communicate with the regulatory authorities, and at the same time urge them to improve the awareness of fund supervision and risk control, as well as deleveraging and other issues.

Finally, I would like to remind you that at the end of 2013, the central bank issued a "Notice on Preventing Bitcoin Risks", which clearly stipulated that financial institutions and payment institutions should not conduct Bitcoin-related businesses. Recently, according to a report in China Securities Journal, "regulatory authorities will continue to meet with industry insiders in the near future to discuss the establishment of a third-party Bitcoin custody platform to ensure the security of Bitcoin transactions." This shows that the regulatory authorities have begun to regulate Bitcoin trading platforms and allow the establishment of third-party custody platforms. This is a sign that the regulatory field is keeping pace with the times and is also sending a signal of goodwill.

(Introduction to the author of this article: Financial columnist)