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Analysis: PBOC Possible Stepping in as a Third-party Custodian for Bitcoin Exchanges is Good news

Rumors spread by some media that China is banning Bitcoin in the event that PBOC has inquired CEOs of China’s major exchanges has been proved absurd by the continuous and normal operation of them and the momentum gained back by Bitcoin in its price, which stands at 919 USD at the press time. 8btc is proud to be first English media in the world to interpret the correct information from the inquiry: It’s a normal move.

8btc now analyzes another piece of news that might be at risk of being misconstrued: PBOC’s possible involvement in Bitcoin exchanges by demanding that a third-party, most likely a bank, be the custodian for the Bitcoin exchange.
According to China Stocks, a newspaper under the official media– China’s Xinhua News Agency, PBOC is still maintaining communication with the three exchanges to further discuss the possibility to introduce third-party custodians for exchanges. The news went viral, despite till now no PBOC’s official has confirmed the information or announced the progress. Some people see this as a restrictive measure by PBOC after it told the exchanges that forged trading volume should not happen, offline promotion activities should not be carried out  and devaluation of Yuan should not be mentioned.

But 8btc believes it would be a great boost if PBOC really steps in by regulating that a third-party custodian is a must for exchanges as it would mean the government admits the legal status of Bitcoin exchanges, the private investors’ interests will be better protected and the financial stability will be upheld, which is one of the most important missions for PBOC.

A third-party custodian means that both exchanges and investors will have custodial accounts in the that agency where settlement from transactions on exchanges will be handled, making cash flow circumvent exchanges and thus prevent exchanges from embezzling the fund for other purposes. The fact that exchanges only needs to match the buyers and seller in the platform can greatly decrease the risk that users’ money is facing.

It is a truth that in China the threshold for Bitcoin exchanges is really low that people have to be worried that whether the exchanges will run away. The collapse of Mt. Gox based in Japan in 2014 which resulting in losses of Bitcoin equaling USD 450 million  is the lesson that PBOC  clearly understands. The intervention at an early stage is the signal that PBOC’s major concern is financial stability. Furthermore, if PBOC really steps in Bitcoin exchanges, a custodian will not be the only measure. PBOC has expressed the concern of system failure of Huobi at peak time when there is great need to withdraw. Then PBOC will list more stringent requirements for system stability, internal control, anti-money laundry process as the new thresholds.

As a matter of fact, measures like requiring custodian and increasing thresholds has been witnessed in PBOC’s efforts in regulating P2P loan platforms amid the backlash from the downfall of China’s biggest P2P platform, E zubao due to illicit use of investors money and bogus funding projects. In the case, RMB 50 billion was involved. These measures thus become evidences that internet finance is actually encouraged by the government as an important part of China’s strategy to diversify financial market on condition that the platforms conform to the laws and regulations. This logic has every reason to apply to Bitcoin trading exchanges.

In our exclusive interview with Mr. Pan Guoli, the founder of Bitrees, a leading data analysis server for digital investment, said to us:

“Actually, the community expect the government to regulate the exchanges. In a law and regulation-based market, those hesitate investors worrying about the policy risk will be much more willing to participate Bitcoin trading. Once exchanges use third-party custodian, small exchanges will have no room to survive. Government may even introduce licensing system. These measures, will help government to crack down illegal Pyramid scheme platforms in the name of digital currency trading. It is indeed a good thing for PBOC to step in, which will lower the systemic risk for exchanges and invest risks for investors”

It is worth mentioning that till now no official confirmation has been given no matter from government or from exchanges for PBOC’s next step. But anyway, 8btc is all for PBOC if the next step is to better regulate exchanges.



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