China "Flutters Out" Bitcoin
China News Weekly reporter/Chen Weishan
After reaching the highest point in history in April this year, the price of Bitcoin has plunged all the way. The overweight Chinese regulatory policy in mid-to-late May is undoubtedly one of the incentives.
Starting on May 18, China has intensively released its regulatory policies on cryptocurrencies: On May 18, the Inner Mongolia Development and Reform Commission established a virtual currency "mining" corporate reporting platform; on the same day, China Internet Finance Association, China Banking Association, China Payment and Clearing Association Issued the "Announcement on Preventing the Risk of Virtual Currency Trading Hype"; On May 21, the Financial Commission of the State Council requested to crack down on Bitcoin mining and trading, and resolutely prevent the transmission of individual risks to the social field; On May 26, the Inner Mongolia Development and Reform Commission issued a resolute Eight measures to combat and punish virtual currency "mining" behavior solicit opinions.
From 2013, when bitcoin transactions were still regarded as commodity trading behaviors that ordinary people can freely participate in, to the withdrawal of domestic virtual currency exchanges in 2017, and then to the clear crackdown on mining behavior, China’s regulatory policies on cryptocurrency are in The most stringent among the major economies in the world.
In view of the influence of Chinese players in the cryptocurrency world, every statement made by the Chinese regulators will directly reflect the large fluctuations in the value of Bitcoin.
Chinese regulation shakes up Bitcoin prices
“The price of Bitcoin is like a child’s face. Whenever it changes, it often rises and falls.” A former Bitcoin “mining farm” told a reporter from China News Weekly. Because of a sharp drop in the price of Bitcoin, his The "mine" was at a loss and was shut down before the outbreak of the epidemic in 2020. At that time, the price of Bitcoin was hovering at US$7,000 or 8,000. He also missed the Bitcoin market that started in the middle of last year.
By the end of 2020, the price of Bitcoin has been close to $30,000. This trend will continue in 2021 until it hits the highest price of $64,863 on April 14.
"In order to deal with the impact of the epidemic, central banks have to adopt some extremely loose monetary policies, resulting in ample liquidity in the market. At the same time, loose funds have caused some institutions to worry about the depreciation of legal currencies, so they turned to some safe-haven products. Recognize Bitcoin and other cryptocurrencies and allocate them as a type of investable assets.” While explaining to reporters why Bitcoin has ushered in a wave of market, a veteran in the currency circle believed that in the past year or so, foreign institutions, especially The trend of blessing by Wall Street institutions is obvious.
"In the research report, cryptocurrency will also be listed as an investable asset class, and at the same time, customers will be provided with cryptocurrency asset-related services."
There are not only institutions that invest in cryptocurrencies, but also companies like Tesla.
Tesla's profit in the first quarter of 2021 reached 438 million U.S. dollars, and nearly a quarter came from Bitcoin transactions.
According to its financial report, Tesla bought $1.5 billion worth of Bitcoin in the first quarter of this year, and sold some of it for a profit of $101 million.
Tesla's "speculation of coins" is behind the cryptocurrency of Musk's platform.
"Another reason that fueled the enthusiasm for cryptocurrencies this year is that business leaders like Musk's remarks on social media can easily disturb the value of the currency." The aforementioned cryptocurrency veteran said that in addition to the above reasons, technological evolution has also Provides bottom support.
"An important tipping point of this round of market is the outbreak of the decentralized DeFi ecosystem, which has spawned many functions and platforms similar to traditional financial institutions."
In his view, the influence of these three factors is still continuing.
"Especially from the recent period of time, the institutions may not exit the market, because the addresses on the chain with a large number of coins are still increasing their holdings, and some people even think that some institutions are entering the market by bargaining."
However, the short-term effects of Musk have weakened the impact of cryptocurrencies.
On May 12, Musk questioned the excessive carbon emissions generated by Bitcoin mining and trading on social media and announced that Tesla suspends Bitcoin payments.
Affected by this, Bitcoin fell more than 10% that day, falling all the way to about 49,000 US dollars.
A senior cryptocurrency analyst told China News Weekly, “Since the beginning of this year, the price of Bitcoin has trended upwards, and even showed some overheating sentiment. In the later period, animal coins and even air coins, which are meaningless, have been adjusted. Necessary, there is indeed a bubble in prices."
Just a week after Musk questioned it, on May 19, Bitcoin ushered in a drop that "the shock range was enough to rank among the top ten in history", the aforementioned senior analyst told reporters.
On May 19, Bitcoin directly broke through the $40,000 mark, and even approached the $30,000 mark, with a maximum drop of 30% in one day, and the final drop narrowed, but it also exceeded 13%.
Other types of cryptocurrencies are not spared. According to the statistics of Bitcoin Homes website, the total amount of liquidation in major exchanges within 24 hours is 7.006 billion US dollars, about 46 billion yuan, which has created the largest single-day liquidation record in the history of cryptocurrencies. .
At the end of May, the price of Bitcoin was almost "halved" in comparison with the historical high it reached this year.
"The reason for the recent decline must be China's latest regulatory policies. The two countries with the greatest influence on cryptocurrencies in the world are China and the United States. China's policies are absolutely crucial." The aforementioned currency circle veteran said.
Can "mining" be banned?
"It can be said to be a complete blockade." Chen Weigang, director of the board of supervisors of key financial institutions of the China Banking and Insurance Regulatory Commission, told China News Weekly.
"It should be that almost no one will invest again, and the decline is huge. In terms of price, it must be sold more than bought, otherwise how could it fall so much." A Bitcoin holder told reporters.
"In fact, virtual currency transactions including Bitcoin were banned more than three years ago, and there is currently no exchange in the country." Chen Weigang said.
The ban he referred to refers to the "Announcement on Preventing Token Issuance Financing Risks" jointly issued by the Central Bank and other seven ministries on September 4, 2017, in which virtual currency transactions have been explicitly prohibited.
About a year later, in July 2018, the central bank revealed that the 88 virtual currency trading platforms listed in the search have basically achieved a risk-free exit. Bitcoin traded in RMB has dropped from more than 90% of the global share to less than 1%. , Is believed to have avoided a virtual currency bubble.
After the "9·4 ban", domestic cryptocurrency exchanges moved their servers overseas one after another, and the regulatory authorities continued to block virtual currency trading platforms that "go to the sea". As of the end of May 2018, including Huobi, Binance and other transactions 110 websites on the platform have been blocked.
Although cryptocurrency exchanges no longer exist in the country and related websites have been blocked, players in the currency circle have not stopped trading.
A person close to supervision told China News Weekly that there are currently two main ways to trade cryptocurrencies, including Bitcoin, in China. Underground bank transactions.
"For example, an underground bank registers two companies in China and the United States, uses companies in the United States to buy bitcoins, and then domestic companies receive the money." He explained to reporters that such capital flows have become more regulated. Strictly, "Previously, payment transactions were often carried out in the name of business payment. Now such payment transactions also require sufficient proof, such as sales and purchase contracts, to ensure that there is a real business transaction, otherwise it will not be achieved. Although it cannot be completely eliminated, it is passed This way of trading is becoming more and more difficult, and the supervision of currency speculation funds has been treated the same as anti-money laundering."
The transaction has already gone underground, and this time the supervision is overweight. Whether it is the "Announcement on Preventing the Risk of Virtual Currency Trading Hype" issued by the three associations or the Financial Commission's statement, the transaction link still follows the requirements of the "September 4 Prohibition".
Many people in the industry also stated in interviews with reporters that the Financial Commission clearly cracked down on Bitcoin mining and trading, "putting mining before trading, you can also see that this time supervision is directed to mining."
This is also true from the response of local supervision. Inner Mongolia first issued detailed rules on May 26. Among the eight measures issued by the Development and Reform Commission of the Autonomous Region on resolutely cracking down on virtual currency “mining” behavior, the scope of the crackdown includes major mining operations. Data centers, cloud computing companies, telecommunications companies, Internet companies, Internet cafes, etc., as well as entities that provide site and power support for mining companies, and companies and related personnel with mining activities are included in the untrustworthy blacklist in accordance with relevant regulations.
The crackdown on mining in Inner Mongolia began in March. At that time, it was announced that virtual currency mining projects will be completely cleaned up and shut down. All of them will be withdrawn before the end of April 2021. At the same time, new virtual currency mining projects are strictly prohibited.
There were also mine owners who told reporters, “In fact, there are always requirements for the closure of mines, so you don’t need to take it seriously.” But this time, the regulatory stance is obviously more stringent. Although other places have not yet issued detailed rules like Inner Mongolia, a reporter from China News Weekly Many mines contacted stated that the mining of cryptocurrencies such as Bitcoin and Ethereum has been suspended. Only FIL mining projects that consume less energy are retained, and mining machines are being transferred overseas. “The transfer speed is not so fast. Quickly, the company had no overseas presence before."
Mars Cloud Mine also released news that in order to comply with the supervision spirit of relevant departments, after careful research and decision, some of the mining machines of Mars Cloud Mine will be transferred to Kazakhstan mines. The relevant mining machines will be shut down on May 23. The expected transition period is Three to four weeks, and from 20:00 on May 26, Beijing time, access to IPs in mainland China will be blocked.
"Domestic mining is still difficult to completely prohibit. This time it is mainly aimed at corporate mining activities. It can be controlled through financial audits on the income and expenditure side. For example, corporate mining will eventually be reflected in revenue and profit appreciation. If part of the profit belongs to mining If the mining is obtained, companies may not be allowed to enter the account. In this way, the mining activities of enterprises can be blocked." Chen Weigang said that some individuals purchase mining machines for mining, especially in some areas with rich hydropower. How to block mining It remains to be seen in the next step.
"But it is equivalent to cutting off large households. Although the number of remaining small households is large, the total amount is not large."
Regulatory gap brings challenges
"This round of domestic regulatory policies may be based more on the consideration of reducing energy consumption." The aforementioned senior cryptocurrency analyst told China News Weekly.
In the global distribution of Bitcoin computing power, China occupies the absolute first place with 65.08% of computing power, far surpassing the second-ranked United States, with only 7.24% of computing power.
Specifically in China, the top four provinces in the distribution of computing power are all located in the west: Xinjiang, Sichuan, Inner Mongolia, and Yunnan, with Xinjiang accounting for more than 35%.
Behind this is a large amount of power consumption.
According to the index released by the Alternative Finance Research Center of the University of Cambridge, estimated at the end of May, the annual electricity consumption of mining is about 115.54 TWh. Intuitively, it accounts for 0.53% of the global annual electricity consumption. Electricity comparison shows that it is located after the UAE and before the Netherlands, ranking 33rd in the world.
In addition to the excessively high carbon footprint, how to supervise Bitcoin and other cryptocurrencies as investment products, and even whether it can be regarded as an investment product, is the focus of recent regulatory statements by various countries.
"Some people confuse the two concepts. Cryptocurrencies such as Bitcoin are not illegal currencies. Currency must be guaranteed by national sovereignty. It can also be seen from the evolution of currency forms that precious metal currencies such as gold and silver coins are transformed into paper currencies and digital currencies. The value of currency itself has been declining, but now people are speculating on the value of Bitcoin itself." Chen Weigang believes that Bitcoin is not even an investment product, it can only be regarded as a kind of "speculation work." 'Tulips', anyhow you can still see a bunch of flowers, now Bitcoin is air, there is nothing."
In the "Financial Stability Review" released by the European Central Bank in May, the hype of cryptocurrency prices was also compared to "tulip mania", suggesting its risk and speculative attributes.
On May 19, when the value of Bitcoin fluctuated violently, European Central Bank Vice President Gindos bluntly stated that Bitcoin is an asset with very fragile fundamentals, and it is highly volatile.
Crypto assets should not be regarded as "real investments" because it is difficult to discern their potential value.
But Jindos also stated that the volatility of the cryptocurrency asset market will not pose a risk to overall financial stability.
Overseas supervision is indeed tightening recently, but it is more focused on regulating cryptocurrency transactions to prevent risks and avoid illegal acts such as tax evasion.
For example, the chairman of the US Securities and Exchange Commission Gary Gensler pointed out when he participated in the congressional hearing on May 26 that crypto assets are both commodities and securities in nature, and it is necessary to strengthen the supervision of cryptocurrency exchanges so that investors can enjoy trading in securities. The same protection as the goal.
The U.S. government has also recently proposed that cryptocurrency transfers of more than $10,000 must be reported to the U.S. tax authorities.
On May 21, the Hong Kong Special Administrative Region government recommended that cryptocurrency exchanges operating in Hong Kong must obtain the license of the Hong Kong market regulator, that is, "licensed operation" and can only provide services to professional investors.
"Overseas regulatory authorities have been strengthening the supervision of cryptocurrency exchanges. This year, there are exchanges such as Coinbase listed. Coinbase's operation is quite conservative. For example, it will not open leveraged trading tools to retail investors, and will only provide some qualified Institutions are open.” The aforementioned senior cryptocurrency analyst said, “Because of supervision, the operation of exchanges is relatively standardized, and institutions also trust the exchanges, forming a virtuous circle. Most Wall Street institutions will place large amounts of funds on exchanges like Coinbase. Not some small, wild exchanges."
He believes, “Foreign regulatory stances are indeed becoming stricter, but they are not as stringent as China. Domestic regulation has not chosen to gradually regulate cryptocurrency transactions, but to some extent shut it down as a “one size fits all”.
In fact, in 2013, the central bank and other five ministries and commissions issued a notice on preventing bitcoin risks. While clarifying that bitcoin is not an illegal currency, they stated that “bitcoin transactions are a kind of commodity trading behavior on the Internet, and ordinary people are responsible for it. Have the freedom to participate under the premise of risk".
However, since then, the regulatory standards have gradually tightened. The domestic investment structure with retail investors as the main body may be one of the reasons.
"Cryptocurrency trading should not encourage individuals to participate, because the volatility is high, and the cognitive requirements for investing in cryptocurrencies are very high." A person from the "currency circle" told China News Weekly that there are currently more than ten companies worldwide. The establishment of cryptocurrency ETF funds, institutional investment should become the mainstream.
Chen Weigang also believes that foreign bitcoin transactions are more of a game between some institutions and consortia, but in China, retail investment is the main one.
"Like the previous P2P, in fact, it appeared in the United Kingdom, the United States and other countries earlier than in China, but the range of people involved in P2P at the peak of China was very wide. The same is true for the hype about Bitcoin this time. There are no things that can exist abroad. It means that there is a reasonable existence in China."
"In fact, if all exchanges are blocked, or there is a gap in domestic and foreign supervision, it will also bring challenges to supervision, because anyone can register an account on the relevant website, and the generated code is the Bitcoin collection account, which is completely anonymous. It cannot be traced, but because there is a follow-up transaction link, the exchange may also track the holder’s information. In this case, the exchange can act as an “informant” for supervision.” A “coin circle” A senior person told China News Weekly that according to his understanding, although some exchanges cannot operate within the country, they still cooperate closely with domestic regulatory authorities and are willing to provide information to the government.
China News Weekly, Issue 20, 2021
Statement: The publication of the "China News Weekly" manuscript is authorized in writing