Central bank faces 3 dilemmas when dealing with bitcoin
OKCoin and Huobi announced suspension of bitcoin/litecoin withdrawal for one month. BTCC said bitcoin/litecoin withdrawal processing would be subject to AML review that could take up to 72 hours. Yunbi says that bitcoin withdrawal would take “longer” time and suspicious account would be frozen today.
All of the statement lends foot on cracking down pyramid scheme like MMM. Chinese government has issued a warning specifically against MMM. MLM is no doubt a crime that should be hunted down. EGD scam cracked down in China 10.9 billion yuan involved.
It’s still too early to say the dust has settled down, but one may notice that the price is slightly higher on the exchanges that still allow withdrawal like BTCC, Btc38, Yunbi. What’s the next move of PBoC? Jiang Zhuo’er shared his view, saying that central bank faces dilemma treating bitcoin.
Dilemma1: is bitcoin money or not?
Although government has no authority to define what is “money” as much as government has no right to defind “metal”. But they have authority to define “fiats”. Although bitcoin has been categorized as “commodity” in the 2013 notice, central bank’s regulation on bitcoin seems a bit awkward. The “meeting” or “inspection” summoned by central bank are temporary measures, which have the following defects:
1. Weakening impact. The market has displayed resilience to authoritative measures, impact of which is weakening every time.
2. Limited vectors. Each time the authority has to find new reasons. This time is for development “AML system”. There are maybe more.
3. Every move of authority will drawn attention from mainstream media. Streisand effect still works.
He quoted a weibo on describing the impact of regulation. Bubble burst happened multiple times in history, a summary could be found here.
Dilemma 2: how to deal with bitcoin exchanges?
If not for the decentralization nature of bitcoin, the exchanges would have been shutdown much earlier. However, regulators have to face a more complicated OTC trade beyond their control if “obedient” exchanges are shutdown.
Russia banned bitcoin trad in Feb 2014, resulting in a boom on bitcoin via localbitcoins.com. Then money flight and underground trading would become totally out of control.
On the contrary, a legitimate exchange may better serve as watchdog. Check out the story of BTCC’s blocking of a 2 billion RMB money laundry case in 2015.
Jiang points out that:
It’s easy for authority to shutdown exchanges. The exchanges may survive as a result of the robustness of bitcoin network rather than the mercy given by regulators.
Dilemma 3: how to control bitcoin price via exchanges
The suspension of bitcoin withdrawal could be viewed as long-term boost to the ecosystem.
Most of the Chinese community have not experienced similar loss like Mt.Gox and would rather keep their coins in the exchanges instead of local wallet. Victims of exchange incidents would pay dearly and chose to leave the community.
Through the recurrence of exchanges incidents, users will gradually learn the importance of self-controlled storage of bitcoin. Once they withdraw coins to their own wallet, there will be shortage of supply in the market and small amount of inflow capital will drive up the price easily.
There have already some speculations on 8btc forum about the tightening controls of bitcoin like shutting down mining farm, suspension or closing of CNY deposit/withdrawal. But more are looking for OTC trade tutorial.