Is it really possible to exchange currency in disguise through Bitcoin? Industry insiders: Theoretically, it is possible, but it is not cost-effective

The People's Bank of China (PBOC) and the State Administration of Foreign Exchange (SAFE) have recently held intensive talks and research on Bitcoin exchanges, and the topic of converting Bitcoin into foreign currency has returned to the public eye.

Can exchanging assets into Bitcoin in China and then into corresponding currencies abroad really bypass the current foreign exchange policy and exchange currency in disguise? Many Bitcoin industry insiders and researchers told The Paper that it is theoretically feasible, but due to the price difference between Chinese and foreign Bitcoin exchanges and the long-term fluctuation of currency values, it is not "cost-effective" to bypass the foreign exchange policy or even transfer assets in this way.

On January 6, the People's Bank of China and its Shanghai headquarters interviewed three Bitcoin exchanges in Beijing and Shanghai respectively, asking them to conduct self-inspections of recent abnormal situations and carry out corresponding rectification. In addition, a manager who participated in the interview confirmed to The Paper that the State Administration of Foreign Exchange also investigated its own platform on the same day, mainly to inquire about the path to break through foreign exchange control through Bitcoin.

An employee of a domestic Bitcoin exchange explained to The Paper that it is theoretically feasible to use Bitcoin to break through foreign exchange controls, but the exchanger will have to bear certain losses. He said that there are currently two ways to exchange Bitcoin for foreign exchange: online and offline.

Among them, online currency exchange is realized through Bitcoin exchanges. Because domestic and foreign Bitcoin exchanges are connected, you can buy Bitcoin with RMB on domestic trading platforms, and then sell it on foreign platforms for US dollars. However, the employee pointed out that large-scale currency exchange is unrealistic, because foreign exchanges also have anti-money laundering mechanisms, which will verify identity information and require cash withdrawals to provide proof of asset source, so it is not easy to exchange successfully.

Offline currency exchange requires finding a Bitcoin buyer in advance, agreeing on a price and then trading in US dollars. Because Bitcoin is a virtual currency, investors can enter a string of password characters to directly withdraw it to their wallets, so this operation is also feasible. However, due to the large fluctuations in Bitcoin prices, people who are willing to trade offline will generally ask sellers to "sell at a discount", so it is not cost-effective for sellers.

“I think the purpose of the foreign exchange survey is more to release information to the outside world - those who want to break through foreign exchange controls and transfer assets through Bitcoin will be strictly monitored,” said the exchange person.

In addition to anti-money laundering mechanisms and buyers' bargaining, the price difference between Chinese and foreign Bitcoin exchanges will also increase the cost of exchanging Bitcoin for foreign exchange.

A Bitcoin entrepreneur told The Paper that there is a price difference between Chinese and foreign Bitcoin exchanges. For example, prices in the United States are generally 1%-2% lower than in China, and sometimes even as high as 9%. In addition, transaction and withdrawal fees will also result in the loss of part of the currency's value.

"Because domestic people invest more in Bitcoin, and Bitcoin is fixed and limited, it is inevitable that the price is high. It is not ruled out that the market makers are pushing up the price," the person said. "The number of users and trading volume of each exchange are different. The price of Bitcoin is caused by many factors. Especially for countries with foreign exchange controls, the price difference between domestic and foreign markets will be relatively high."

The price of Bitcoin hit a new high of 8,895 yuan on January 5, and then fell. The current price is between 6,000 yuan and 7,000 yuan. At around 7 pm on the 6th, after the central bank announced the interview information, the price of Bitcoin once plunged to 5,555 yuan. However, compared with the beginning of 2016, the price of Bitcoin has doubled this year.