“Four Questions About Bitcoin” One: Why Regulation Comes One After Another How Risky Is Coin Speculation?

Where do virtual currencies go from here?

"Four Questions About Bitcoin" One: Why Regulation Comes One After Another How Risky Is Coin Speculation?

Editor’s Note: In May, the “cryptocurrency world” attracted a lot of attention, and on May 18, the Internet Finance Association of China and other three major associations issued a notice pointing out that the exchange of legal tender and virtual currency and the exchange of virtual currency is a violation of relevant laws and regulations and suspected of being a crime. On May 21, the Financial Commission of the State Council made a strong statement, once again clarifying the financial regulators’ attitude towards strict regulation of bitcoin: “Crack down on bitcoin mining and trading, and resolutely prevent individual risks from being passed on to the social sector”.

Where does the “fever” of coin speculation come from? What is the chaos in the “cryptocurrency world”? How does “mining” consume energy? How to develop blockchain healthily? With these questions, People’s Daily Online “Strong Observation” column launched a series of “Four Questions on Bitcoin”, please pay attention.

In the background of the recent strong regulation, the “cryptocurrency circle” ushered in a “huge shock”. As a result, coin speculation has entered the public eye, and a series of problems behind it have gradually surfaced.

Where does the “hot” speculation come from?
When it comes to coin speculation, we have to mention the recent craze of Bitcoin. It is understood that bitcoin is a kind of peer-to-peer virtual currency based on a specific algorithm, generated through a large number of calculations, and its core is decentralized. Industry insiders say that originally this concept only aroused interest among specific technology enthusiasts, but as the price of bitcoin has risen and fallen, its speculative properties have become more and more obvious, and more and more people are involved.

How exactly does this unseen and untouchable thing achieve price spikes and drops to lure people in? Yin Zhentao, director of the Financial Technology Research Department at the Institute of Finance, Chinese Academy of Social Sciences, said that Bitcoin itself is designed with mechanisms that will make its price higher and higher. The total supply of bitcoin is very limited and has scarcity. With a certain amount of supply, demand will increase due to the negative price elasticity of demand for bitcoin, meaning that the higher the price of the coin, the more robust the market expects it to be.

Yin Zhentao said, in addition to the characteristics of the bitcoin itself, frenzied speculators, fanning the flames of propaganda, sitting on the intermediary …… speculation of various roles, are driving the virtual currency market hot.

The people’s network “strong observation” column in the process of looking for speculation channels found, Zhihu, microblogging, WeChat public number, QQ and other Internet platforms, can search for a large number of “white speculation guide” and other “guide” investors how to speculate on coins information, picture ads or video, and “speculation after 90: 3 months to earn a million fortune” and other similar titles touting speculation on coins rich story, is as much as an ox hair.

A “cryptocurrency” industry insider revealed that institutional intermediaries pursuing virtual currencies are very good at using obscure technological terms and exaggerated but seemingly realistic wealth creation stories to convince investors to enter, thus creating a “herd effect” of blind investment in the market.

How to understand the hot speculation market, Yin Zhentao made an image analogy: “This virtual currency market is like a closed room, there are a large number of investors in the room, and there are constantly new people entering, these people are incited by the propaganda propaganda, and constantly buy coins, the more people buy, the price will naturally be raised.”

After the Bitcoin boom, other virtual currencies such as ethereum and dogcoin have emerged, which are also “favored” by speculators.

“From the birth of Bitcoin to now, how many small coins have appeared in the past few years, countless, most of them are using the celebrity effect to issue coins, harvest a wave of ‘leeks’, and finally the founder of the coins turned away in style.” A “cryptocurrency” industry insider said.

In the final analysis, in such a virtual currency market, one side is overnight riches, the other side is “cut leeks”, the first to bear the brunt is the lack of discernment of investors.

Why regulation comes one after another
On May 18, the three major associations of the financial industry jointly issued an announcement asking member institutions not to carry out virtual currency trading exchange and other related financial services. 21, the State Council Financial Committee meeting clearly proposed to crack down on bitcoin mining and trading practices. A series of initiatives highlight the clear attitude of strict regulation.

Xiao Za, director of the China Banking Law Association, said that in 2013 bitcoin was characterized as a “specific virtual commodity”. For a long time, bitcoin and other virtual currencies have been linked to speculation, bitcoin speculation and the price of the currency fell tremendously, investors who bought bitcoin’s property was infringed, which may lead to “personal risk to social risk transmission”.

“In particular, in previous years, financing activities through the issuance of tokens have proliferated, speculation is prevalent, suspected of engaging in illegal financial activities, and most of them are promoted through marketing activities, which seriously disrupt the economic and financial order and social management order.” Xiao Sa introduced.

In addition to financial risks, Bitcoin and other virtual currencies are repeatedly touching the bottom line and red line of the law. Anonymity, decentralization and cross-border circulation convenience are the distinguishing features of Bitcoin. “With the help of these characteristics, virtual currency holders evade domestic regulation and realize the free exchange of virtual currency and fiat currency through overseas exchanges and service providers.” In this way, virtual currencies such as bitcoin have become a new means of cross-border money laundering, and regulatory means are urgently needed to regulate it, Yin said.

Since 2020, with the Ministry of Public Security, the Central Bank and other departments joining forces to combat and manage cross-border gambling capital chain operations, money laundering and fund transfers with the help of virtual assets such as bitcoin have been more closely watched by regulators.

Where do virtual currencies go from here?
Bitcoin has recently become the focus of public attention with its plummeting “exit”. The relevant authorities in China have long been aware of the risks associated with virtual currency trading speculation, and the regulation of it can be traced back to 2013.

In 2013, the People’s Bank of China and five other departments jointly issued the “Notice on Preventing Bitcoin Risks”, requiring financial institutions and payment institutions not to carry out business related to bitcoin. 2017, the central bank and seven other departments called a halt to all kinds of token issuance and financing, and carried out special rectification. Subsequently, China’s virtual currency trading platforms and ICO trading platforms basically achieved a risk-free exit, and the global share of bitcoin traded in RMB once dropped to less than 1%.

In the face of the tightening regulatory trend, where does the future of the virtual currency market go from here?

“I think the state regulation of virtual currencies is an ever-increasing process. The three associations and the finance committee are just a signal designed to remind the general public to exit this market, and the regulators will continue to tighten their policies in the next step.” Yin Zhentao said.

He also reminded the general public that the most essential difference between virtual currencies such as bitcoin and traditional money is that it is a virtual commodity, not a currency. Historically, any digital cryptocurrency that is out of regulation and has not been given the right to circulate is very risky to operate and is bound to not survive for a long time.

Xiao Sa believes that strict regulation is now the general consensus, but China does not yet have laws or administrative regulations specifically regulating virtual currencies such as Bitcoin, and relevant laws and regulations or judicial interpretations may be introduced in the future to explicitly prohibit all virtual currency trading practices.

“To continue crypto token ‘mining’ is to continue to be at odds with the law. As virtual currencies erode legal tender and financial security, national laws and enforcement will only tighten. Whether you like it or not, the law is there, not in vain.”

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/four-questions-about-bitcoin-one-why-regulation-comes-one-after-another-how-risky-is-coin-speculation/
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