Bitcoin's good days are coming? The battle of attack and defense has just begun

     In January 2016, the People's Bank of China issued a statement saying that it would step up discussions on issuing "digital currency". Seeing "digital currency" inevitably reminds us of Bitcoin , which was popular all over the world two years ago, and was warned by the People's Bank of China to guard against risks shortly after entering China . Will it regain vitality and make a comeback? In fact, the People's Bank of China has established a special research team since 2014, the second year after Bitcoin's popularity declined, and has obtained cooperation from Citigroup and Deloitte, an international accounting firm, to discuss the feasibility of issuing digital currency. Regarding the significance of issuing digital currency, the People's Bank of China also emphasized that it can reduce the high cost of issuing and circulating traditional paper currency, improve the convenience and transparency of economic transaction activities, and reduce illegal and criminal activities such as money laundering and tax evasion.

Is the Bitcoin craze making a comeback?

According to data from Bitcoin China (BTCC) , a major Chinese Bitcoin exchange, the exchange rate of Bitcoin to RMB, which had been in the range of 1,000-2,000 yuan for a long time, began to soar in October 2015. In early November, it reached 1 Bitcoin to 3,000 yuan, which was 2.6 times higher than the low point in August . It then continued to hover in the high point area centered at 2,500 yuan. With October 2015 as the turning point, the transaction volume also increased significantly.

RMB to Bitcoin exchange rate

70% of the world’s bitcoin transactions are traded against the Chinese yuan. Bitcoin began to spread in China, which is considered the center of the world market, in 2013. In July of that year, the exchange rate of bitcoin against the Chinese yuan was still around 500 yuan per bitcoin, but speculative funds that lost patience with the continued slump in the Shanghai stock market poured in like a flood, and in November of the same year, the price soared to nearly 7,600 yuan.

In fact, the trend of Bitcoin in the past two years has been extremely thrilling. At the end of 2013, the price of Bitcoin soared above the $1,000 mark, but plummeted to below $200 a year later.

Bitcoin chart

  In addition, global Bitcoin trading volume also saw a sharp increase in the last few months of 2015.

Image source: Business Insider

As it became a social phenomenon that was continuously reported by the media, China, worried about the gap in currency management, began to strengthen the supervision of Bitcoin. The People's Bank of China (PBOC) and other institutions continuously introduced measures to strengthen supervision at the end of 2013, which resulted in a sharp drop in Bitcoin. In December, it even fell by half in just one day. After that, Bitcoin continued to fall, and the craze seemed to have disappeared for a while.

Here are some of Bitcoin’s most iconic moments from the past two years:

On December 5, 2013, the People's Bank of China and five other ministries issued a notice on preventing Bitcoin risks, which stipulates that Bitcoin is not a real currency and cannot and should not be circulated and used as currency in the market.

On February 7, 2014, major Bitcoin trading platforms (Bitstamp, Mt Gox, BTC-e, etc.) suffered a large-scale distributed denial of service attack (DDoS attack).

On March 26, 2014, the U.S. Internal Revenue Service (IRS) issued an official statement that Bitcoin will be regarded as property and will be taxed.

On June 27, 2014, the US government auctioned nearly 30,000 bitcoins online. These huge amounts of digital currencies were seized by the FBI in October 2013 when it closed down Silk Road, the world's largest online black market. At the time, they were worth about $18 million. The US Marshals Service said in an online statement that the auction of 29,600 bitcoins began on June 27.

On July 17, 2014, the New York State Department of Financial Services announced a proposal for a virtual currency regulatory framework, referred to as the "Bitcoin License."

On September 8, 2014, PayPal, a giant in the payment industry, announced that it would cooperate with Bitcoin transaction service provider Coinbase to integrate this virtual currency into the company's Braintree payment system.

On October 6, 2014, a sword of Damocles hung high: an unknown trader sold 30,000 bitcoins on the Bitstamp platform.

On January 4, 2015, the Bitstamp platform was attacked by hackers and 18,866 bitcoins were stolen.

On July 1, 2015, two U.S. federal agents involved in the Silk Road takedown admitted to stealing Silk Road bitcoins.

On August 8, 2015, two core figures in the Bitcoin field developed a new version of Bitcoin - Bitcoin XT. Some people believe that this split marks the end of Bitcoin.

On October 22, 2015, the European Court of Justice ruled that transactions in Bitcoin and other virtual currencies would be exempt from Value Added Tax (VAT).

On October 31, 2015, Bitcoin appeared on the cover of The Economist.

After the central bank released the relevant meeting content, Bitcoin began to strengthen. From around 20:30 to 23:15 that night, in less than three hours, Bitcoin rose by nearly 10%.

With the announcement of the Chinese central bank on its "digital currency", Bitcoin may be "resurrected" at the moment. BTCC CEO Li Qiyuan told the media that among all investment assets, Bitcoin investment is the most popular and trading may be even hotter.

Is this investment in Bitcoin just for risk aversion?

People involved in hedge funds investing in Bitcoin said that rather than speculative purposes, it is better to believe that "the continued depreciation of the RMB is pushing Chinese investors into Bitcoin."

Another factor that worries the Chinese economy, along with the slowdown in economic growth, is capital outflow. Despite the desperate efforts of the People's Bank of China to support the RMB, the RMB is still difficult to escape the risk of depreciation. In particular, after the People's Bank of China suddenly lowered the RMB exchange rate in August 2015, funds began to flee China at an accelerated pace through various means.

Why does the central bank want to issue digital currency? The answer is to "eliminate cash." As we mentioned at the beginning, the central bank stated in this statement that issuing digital currency can reduce the high cost of issuing and circulating traditional paper currency, improve the convenience and transparency of economic transactions, reduce illegal and criminal activities such as money laundering and tax evasion, and enhance the central bank's control over money supply and circulation.

Recently, Chinese companies have been exposed for transferring funds overseas through fictitious trade transactions. It is also not uncommon for individuals to convert RMB into foreign currency in Hong Kong and other places and then invest in insurance products. China is paying close attention to capital outflows. HSBC, a major British commercial bank, tightened its lending to Chinese people investing in US real estate in January 2016. In addition, China UnionPay has also tightened restrictions on the use of "UnionPay cards" to purchase insurance products overseas.

Hong Hao, chief strategist of Bocom International, said in an interview with Hong Kong newspaper that if digital currency is issued, it will be easy to control the flow of capital. The loophole of using Bitcoin for capital transfer can be blocked by managed digital currency.

After the People's Bank of China released the above news, relevant media outlets have spoken out, believing that the Chinese government has begun to take action to crack down on Bitcoin.

However, Bitcoin, which fell after the central bank released the news, has since risen steadily. It can be said that the current impact on investors' psychology is very limited. It can be said that the first wave of Bitcoin enthusiasm in China was for "speculation", while this time it is for "risk aversion". It is not without precedent for the government to operate digital currency. After the central bank's affirmation, 2016 is a year of reshuffle for China's digital currency industry. In the future, it is also necessary to pay attention to the direction of China's official digital currency and Bitcoin offense and defense, and perhaps the situation will reverse.