The chaotic world behind Bitcoin: some players lose all their money, and middle-aged women rush in

Following the meeting with the main person in charge of the Bitcoin trading platform on January 6, the central bank conducted an on-site inspection of the Bitcoin trading platform yesterday.

The Beijing Operations Management Department of the Central Bank announced that it would enter Bitcoin and Litecoin trading platforms such as Huobi.com and Bihang from January 11 to conduct on-site inspections on the trading platforms’ implementation of foreign exchange management, anti-money laundering and other related financial laws and regulations, and trading venue management regulations. The Shanghai headquarters of the Central Bank announced that it would also conduct on-site inspections of Bitcoin China.

As soon as the news came out, Bitcoin plunged. As of 22:00, the opening price of the day was 6290 yuan, and the lowest price reached 5155 yuan. On January 5, Bitcoin broke through the historical high of nearly 9,000 yuan and then experienced a flash crash.

The Beijing News reporter saw in the QQ group that he joined that players in the group lamented about the central bank's new measures, and felt that the central bank's involvement would likely lead to an uncertain future for Bitcoin. One netizen said: "It's going sideways, either plummeting or soaring."

In the face of the regulatory storm, this QQ group with 1,990 netizens was divided into two factions: those who wanted to sell as soon as possible and those who wanted to cover their positions at a low price.

The Beijing News reporter found during the investigation that the entry of more and more investors has pushed the domestic Bitcoin market to a new high. Domestic Bitcoin players have evolved from early geeks to a group of pure speculative traders.

Now I dare not move at all

This week, for Mr. L, it can be said that he experienced the stimulation of his heart rate rising and falling sharply.

"7396, 7359, 8895, Yeah!" On January 5, watching the real-time price of Bitcoin jumping on the computer screen, Old L excitedly raised his arms and shouted. With shaking hands, he typed the message "I'm rich!" in the QQ group, and several Bitcoin players sent grinning emojis.

While everyone in the QQ group was cheering, Lao L remained sober. In his opinion, such a large increase would definitely attract the attention of relevant departments. But he did not expect that the central bank would act so quickly this time.

On January 5, Bitcoin experienced a flash crash after breaking through its all-time high. The highest intraday price was close to 9,000 yuan, and then it quickly plunged. "I thought I could make a lot of money, but I didn't expect the central bank to intervene so quickly." The young man likes to call himself Lao L, which means "Leader".

On January 6, the central bank announced that it had met with the heads of relevant Bitcoin platforms. Yesterday, the central bank even conducted an on-site inspection of the Bitcoin platform. Bitcoin prices plummeted upon hearing the news. As of 18:00, the lowest price of the day was 5,757 yuan.

In fact, this is not the first time that the price of Bitcoin has skyrocketed and plummeted. Lao L is one of those who has experienced such a rise and fall.

Bitcoin price chart in recent days

Among domestic Bitcoin players, he was not one of the first to enter the industry. However, his many years of working experience in financial companies gave him a lot of insights into Bitcoin, and many of his friends entered the circle under his influence.

In May 2013, after accidentally seeing CCTV's "Economic Half Hour" report on Bitcoin, the keen-nosed Mr. L began to pay attention to this new thing. During that time, he would go online every day to collect Bitcoin data and price trends, and cashed out all the 150,000 yuan that was originally used for stock speculation so that he could buy Bitcoin at any time.

The opportunity came in 2014. Affected by the central bank's policy, the price of Bitcoin continued to decline since the end of 2013, and the downward trend continued until the second quarter of 2014. Lao L chose to make a move at this moment. In his opinion, Bitcoin had fallen to more than 2,000 yuan at this time and would not show a sharp downward trend.

"It was still quite cheap at the time, about 2,700 yuan," Mr. L recalled. Two months later, the price of Bitcoin began to recover, gradually rising to 3,996 yuan. Mr. L successfully made a profit of more than 60,000 yuan: Investing in Bitcoin was indeed not a bad idea.

Old L made a fortune! This news quickly spread among his friends. Soon, many friends came to him, hoping that Old L could share his experience and make money together by speculating in Bitcoin.

In a short time, Lao L became the wealth leader among his friends. He set up a QQ group and published the latest news about Bitcoin and professional terms such as virtual currency, blockchain, and constant total amount every day so that his friends could quickly get involved.

But the good times didn’t last long, and Bitcoin started to decline again. By November 2014, the price had fallen back to 2,066 yuan. Both Mr. L and his friends lost money.

The "halo of authority" began to fade. Doubts arose in the QQ group, and many friends sold their bitcoins and left the group. The number of people in the group dropped from more than 30 to more than 10.

At that time, Lao L became nervous for the first time. He realized the difference between Bitcoin and stocks. There was no limit down, the market was too complicated, and he didn't know when it would be the right time to cover his position. All these confusions made him want to give up Bitcoin. During that time, the only thing that supported him was the news that the number of domestic players was growing explosively.

Fortunately, the price of Bitcoin rose again in 2015, and at the beginning of 2017, it experienced a scene of rapid rise and fall.

Old L decided to sell some of his bitcoins and hold on to the rest to wait and see. "But it's still too slow. Now I dare not move at all. I can only wait and see when it will rebound." He anxiously checks the latest market conditions every day.

Mining becomes more difficult, choose to fade out

In a factory building of a mechanical and electrical factory in the suburbs of Chongqing, more than 60 computers are running at high speed day and night, creating a tinnitus-inducing noise. This is the "mine" of Sun Jie, one of the earliest "Bitcoin miners" in China.

In 2011, Sun Jie entered the Bitcoin market by “mining” when the price was still at $30.

At that time, there were two ways to obtain Bitcoin: one was to buy it on the trading market, and the other was to use a computer to run a Bitcoin generation program to "mine" it. Compared with the instability of the price of speculative coins, the cost of mining is mainly equipment depreciation and electricity costs, and the profit comes from selling Bitcoin, which has relatively small risks.

But mining is not easy. First, it requires high-end computers, especially high-end graphics cards, to ensure efficiency. Sun Jie spent more than 100,000 yuan to equip 8 high-end computers, all of which used AMD 's flagship graphics card 5970 at the time. Second, "mining" will generate a lot of noise, which requires an unaffected site.

For example, there were "miners" who mined in their own homes, and the noise from their computers continued day and night, attracting complaints from neighbors. There were also "miners" who accidentally caused a short circuit in the wires, which caused a fire. The factory building of Sun Jie's own electromechanical factory was an excellent "mining" site.

For the mined bitcoins, Sun Jie adheres to the principle of "mine and sell now" and immediately cashes them out through platforms such as Tokyo Mt.Gox and BitChina to minimize the risk of currency depreciation, and then uses the money earned to buy computers.

In one year, Sun Jie mined 2,700 bitcoins, making a profit of 400,000 to 500,000 yuan. However, in 2013, when bitcoin became increasingly popular, Sun Jie chose to withdraw from the industry.

"The more people there are, the harder it is to mine." Under the condition that the rate of Bitcoin generation remains constant, the increase in "miners" means a slowdown in the rate of "mining." At the same time, the emergence of professional "mining machines" has made "mining" even more difficult. A computer can only produce one coin in two or three months, which is far from enough to cover the electricity cost.

Sichuan youth Zhang Cheng (pseudonym) also chose to leave.

In July 2014, Zhang Cheng brought together two friends, raised 100,000 yuan, rented a single room in the suburbs of Nanchong, set up 10 computers, and started his coin mining career.

At that time, he thought, "Digging one coin means thousands of dollars in hand."

Since Bitcoin is generated by computers running algorithms and generating special numbers, it must be recalculated once it is interrupted during operation, so the computer must run 24 hours a day. This requires the three people to take turns to stay up late in the studio to monitor the operation of the computer and prevent accidents such as power outages and short circuits.

"I couldn't sleep at all." Zhang Cheng called the small house of less than 40 square meters a "steamer."

"I ran the machine every day, but couldn't mine a single bitcoin. The anxiety was indescribable. But when I mined the first one, I was so excited that I called everywhere to show off," said Zhang Cheng.

One month later, the computer only produced 4 bitcoins. At the price at that time, it was less than 12,000 yuan. Excluding rent and electricity, the net profit was less than 8,000 yuan, or more than 2,000 yuan per person.

At this moment, a friend suggested that we sell the computer and buy a mining machine.

Zhang Cheng checked online and found that the most popular mining machine on the domestic Internet at that time was manufactured by a mysterious person named "Dr. Pumpkin" in 2013 and sold on the Internet for 8,000 yuan. It is said that the efficiency of a "mining machine" is equivalent to that of more than 20 high-end computers, and the cost can be recovered in two days.

However, this suggestion was rejected by Zhang Cheng. “What if one day, the mining machines and computers can no longer mine coins? The computers can still be sold second-hand, but the mining machines will become a pile of scrap metal.” Zhang Cheng chose to withdraw.

I was stuck as soon as I entered, so I left

When Sun Jie and Zhang Cheng turned to leave, 27-year-old Hu Tiehan rushed in with the dream of investing in Bitcoin.

Hu Tiehan, who once studied in the United States, had already heard of the name and magic of Bitcoin. What excited him was the popularity of Bitcoin in the domestic market.

Earlier media reports stated that in 2012, China ranked 7th in the global ranking of Bitcoin wallet downloads, and in February 2013, China surpassed the United Kingdom to rank second; in May, China's downloads reached 84,000 times, surpassing the United States to rank first.

"The popularity of the domestic market means that Bitcoin will definitely appreciate in value." In April 2013, Hu Tiehan purchased more than 40 bitcoins on the Mt.Gox platform in Tokyo at a price of US$260 per coin and entered the market.

Unexpectedly, he was trapped as soon as he entered the market. During that period, the price of Bitcoin fell all the way, and it had fallen to $65 at its lowest point, and he almost lost all his money. However, his limited knowledge of Bitcoin made him afraid to cover his position like he would stocks. "There is no limit on the price of Bitcoin, and it is very likely to fall to $1. I dare not buy it without understanding the market."

Although the subsequent rise in Bitcoin prices allowed Hu Tiehan to get out of his predicament, the experience of ups and downs made him no longer attached to Bitcoin, and he eventually sold it and left.

From geek to speculator

Sun Chunyu, senior operations manager of HaoBTC, said that most of the early participants in Bitcoin were geeks and technology geeks. Later, as the price of Bitcoin continued to rise, it attracted a group of purely speculative traders. After more media reports in recent years, some middle-aged women also entered the market.

“The main players of Bitcoin are men aged 20-40 with a technical background or a certain level of financial ability. In the past year, the proportion of female players has also increased.”

“Before, more players in the market did not understand Bitcoin and hoped to make a quick buck like speculating in stocks. Now that the market has begun to settle, more and more people are interested in long-term investments,” said an industry practitioner who declined to be named.

According to user-related data provided by domestic trading platform HaoBTC to the Beijing News, the transaction ratio accounts for 24% of the main uses of Bitcoin, the investment ratio reaches 30%, and the payment ratio accounts for 36%.

In terms of the occupational proportion of players, the IT industry and the education industry are still the main ones, accounting for 38.1% and 35.7% respectively. The male to female ratio of investors is 60%. The 30-39 age group accounts for 66.1% of the age distribution of players. This is consistent with the portrait of the Bitcoin crowd by Li Lin, the founder and CEO of Huobi.com: "High-asset investors are more accustomed to holding Bitcoin for the long term."

“Wasn’t there a rumor some time ago that the RMB exchange rate was depreciating? So everyone rushed to buy Bitcoin, hoping to use it to preserve the value of their funds, and the price naturally went up.” said veteran player “Lei Sir”.

Regarding the recent operation methods, the players in the QQ group that the reporter joined all believed that they should try to speculate in the short term during this period and "take advantage of the chaos to make a fortune." Although the central bank has repeatedly reminded people of the non-monetary attributes of Bitcoin, more mainstream investors have not withdrawn.

Professor Zhang Ruidong, academic committee member of CIFI Center of Zhejiang University Internet Finance Research Institute, explained that one of the reasons for Bitcoin's volatility was that the central bank met with the person in charge of the Bitcoin platform. The subsequent rebound also proved that domestic players had high expectations for Bitcoin, and short-term speculative factors led to the price recovery.

Mingxing Xu, founder and CEO of OKCoin, believes that the fundamental reason for this round of Bitcoin price increase is that the Bitcoin user base is growing, supply exceeds demand, and the price rises.

"Today, mainstream investors view Bitcoin as a pure long-term investment product, which is not much different from investing in stocks, futures, etc. However, there are many who do not understand the characteristics of Bitcoin and only treat Bitcoin as an investment product such as stocks and gold for short-term operations," said Li Lin.

The vision of huge profits from Bitcoin has led countless players to enter this investment forest, but the various risks hidden behind the industry have also caused them to suffer heavy losses.

A risky market

In January 2017, Tencent's "Prism" pointed out that the most common ecosystem for Bitcoin in China is to allocate overseas assets, and listed the detailed process: buy Bitcoin from domestic trading platforms - withdraw Bitcoin - transfer to foreign trading platforms - sell Bitcoin - withdraw to bank cards. Through this path, domestic funds can move across borders without restrictions - and this channel is recommended by some wealth management companies to some high-net-worth (over one million) clients to allocate overseas assets.

But Xu Mingxing disagrees with this statement. In his opinion, the past price difference between Bitcoin at home and abroad shows that there is no sign of large capital outflow through Bitcoin. The actual situation shows that the price difference between Bitcoin at home and abroad is only about 1%-3%.

In addition, Bitcoin's convenience, anonymity, and ability to enable fast global transfers are also attractive to criminal organizations.

In the Bitcoin network, the identity of the owner only appears in the form of a set of encrypted computer codes. The network only records which address a Bitcoin is mined from and how it is circulated, but the identity of the owner of these addresses cannot be verified. Related transactions can easily be invisible from the government's regulatory vision, and regulators are difficult to track or intercept.

Take the US Silk Road as an example. Silk Road is an anonymous black market where the only trading currency is Bitcoin. In 2011, New York State Senators requested an investigation into Silk Road's "using Bitcoin for money laundering." On October 2, 2013, Silk Road was shut down. The FBI officially announced that it had arrested the site owner, Ross Ulbricht, and seized all of his 26,000 Bitcoins.

Unlike overseas markets, the biggest risk of domestic trading platforms is that once the website is closed, all bitcoins in transactions can be embezzled and players will have nowhere to trace them.

The first major platform "runaway" incident can be traced back to October 2013. At that time, GBL, a Bitcoin trading platform that ranked among the top five in the country in terms of market size and had a transaction volume of up to 50 million yuan, was inaccessible. A suspected hacker message appeared on the homepage: "This trading platform has been hacked. Please transfer the amount we said to the designated account, otherwise we will delete all data on the website."

However, this phenomenon disguised as a hacker intrusion was considered by Bitcoin players to be "self-directed and self-acted", and the GBL platform was also sued. According to the public case, the amount involved in the case has been found to be more than 1 million, but Bitcoin players said that the actual loss amount exceeded 20 million.

The case of the GBL head running away reflects the form of fraud: after Bitcoin players register an account, they are required to pay remittances through a third-party platform. After the players successfully remit the remittances, they will no longer be online.

The most recent risk event is that, according to media reports, a company called Bitcoin Asia Lightning Trading Center encountered a payment crisis and was suspected of running away.

In addition, the Beijing News reporter found in the Bitcoin exchange group that every once in a while, the official customer service of a certain platform would post relevant advertisements in the group - promoting short selling or long selling. In the view of industry insiders, short selling and long selling will undoubtedly aggravate the sharp rise and fall of Bitcoin, and are more easily controlled by the market makers.

Industry alliance in the making

"An industry alliance is about to be born." On January 6, Huobi founder and CEO Li Lin told the Beijing News reporter.

Xu Mingxing said that there is indeed an idea of ​​​​an industry alliance, but it has not been promoted yet and is only in the conceptual stage.

The idea of ​​establishing a Bitcoin industry alliance has been around for a long time. "Without the guarantee of industry regulations and without understanding the Bitcoin market situation, who would dare to enter rashly?" Li Lin said helplessly.

"If there are no industry standards in the country, it feels like trading is very risky." Lao Lin, a player who witnessed the "GBL incident," was deeply impressed by the scam, which made him extremely cautious in future transactions.

The policy gap reflected behind the chaos made Li Lin determined to "learn from the mature Bitcoin markets in Europe and the United States and formulate industry regulatory standards."

According to the information, Germany, which was the first country in the world to recognize Bitcoin, has a Federal Financial Supervisory Authority that stipulates that to set up a Bitcoin company, one must meet conditions such as having a registered capital of 730,000 euros, submitting a detailed business plan, introducing an anti-money laundering mechanism, and reporting regularly to the Federal Financial Supervisory Authority.

The U.S. Internal Revenue Service stipulates that if Bitcoin is paid as wages or service fees, the recipient needs to pay personal income tax. If Bitcoin is regarded as capital such as stocks and bonds for investment and trading, the income gains and losses will be treated as capital income tax.

The most recent policy released in the domestic market was the notice issued by the central bank in 2013.

"It has been more than three years since then, and the domestic Bitcoin market has also undergone tremendous changes." In Li Lin's view, the notice issued by the central bank is not a real regulatory policy. The issues that the government is most concerned about, such as "what is the transaction volume", "whether there is insider trading", and "whether the investment rights and interests of players will be affected", have not been substantially resolved.

"Bitcoin has a fatal weakness. It is very small in scale. If it is expanded, can its security and efficiency be implemented?" Zhu Min, former vice president of the IMF, once told the Beijing News reporter, "We need to expand it before we can know how well it is doing."

"We also need to consider plans and solutions such as how to control money laundering risks and how to make information public," said Li Lin.