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The worst case speculation after PBOC inspection

PBOC inspection team released an official briefing on 18th Jan  , which hammered down the price to around 5,700 yuan, or around 7%. The briefing is concise but also contains rich implications. We may speculate the best and the worst outcome of this event by reading between the lines.
The briefing reads:

“The Shanghai Headquarter and the Department of Business Management of the People’s Bank of China (POOC) has released an official briefing on the site inspection to 3 Bitcoin exchanges starting from 11th Feb in Shanghai and Beijing. BTCC in Shanghai conducted business operation beyond the approved scope of business, loaning business that violates regulation, investors funds are not stored via third-party custody and other issues. Bihang(OKCoin) and Huobi in Beijing violated regulation by carrying out loaning of fiats and bitcoin, which lead to abnormal market fluctuations, and failed to establish internal control system for AML.”

The attention that Bitcoin received from mainstream media has never been so intensive before. The silver lining is that Bitcoin got more exposure than ever and we see positive arguments via RTs of these mainstream coverage.


In terms of the response speed, BTCC was the first, Huobi second and OKCoin released a statement earlier today:

“As required by the regulatory authority, OKCoin has suspended “bitcoin and fiat loaning” business. Lenders will not be able to borrow funds after paying back previous loans. Normal Bitcoin transaction is not affected”

BTCC’s response:

In reply to the briefing of Shanghai HQ of PBOC site inspection: BTCC will actively cooperate with the inspection by central bank and other regulatory authorities and implement measures accordingly. BTCC in normal operation.


Huobi released a statement Thursday night:

“As required by regulatory authority, the Company has made the following adjustment: Leveraging (bitcoin and fiat loaning) business is terminated. No more leveraging quota will be appropriated from now on. “



If you read between the lines, the best thing to happen would be all user funds (fiats) would be stored via third party custody. However the “third party custody” is in direct contradiction against the regulation requirement released by PBOC and other regulatory authorities in 2013, which asked financial institutions and payment processors not to provide customers with service directly or indirectly related to Bitcoin. The warning blew away the Bitcoin price bubble when it first hit 8,000 yuan. Unless there is an updated statement to allow banks to hold funds for these exchanges, otherwise no banks will take the chance.

1. Liquidity shortage
This is already happening. The transaction volume of 3 exchanges has dropped significantly as visualized by Willy Woo:

Without margin trade and loaning, automated traders may retreat from the market and turn to other assets. However, as mentioned by a professional trader, the API provided by these exchanges is best suited for bot-trading, which could not be found elsewhere. And the non-stop trading hours of exchanges across the world has no counterpart in other markets.
2. No more 0 transaction fee
It’s likely. Loaning was the common business practice on the 3 Bitcoin exchanges to support margin trade up to 5x. A 0.1%-0.5% transaction fee was charged when traders initiated such a transaction. It’s believed that the margin trading fee was to compensate the 0 fee of normal Bitcoin trade and also the major source of income for these exchanges. By the way, these three exchanges have 100 to 300 full-time staff.
3. Exchange shutdown
As for a total shutdown of bitcoin exchange, most people assumed it would be unlikely. There is no mention of “illegal” wording in the briefing, thus “shutting down” has no legal support. Besides it would be a deadly blow to the emerging trend of blockchain applications, in which Chinese companies have invested thousands of millions. “illegal bitcoin trading” may lead to another question: “is blockchain legal?”.

As disclosed by BTCC staff :

“The central bank doesn’t specify any off-scope business operation. Besides when we apply for business license there is no such option as Bitcoin.”

Just like the backlog of bitcoin blockchain, there are much to be confirmed by the regulatory authority. The rapid development of the ecosystem has prompted regulators to face the questions, whether they like it or not.


  • hl5460
    6 years ago hl5460

    POBC inspection team released an official briefing on 18th Jan  , which hammered down the price to around 5,700 yuan, or around 7%. The briefing is concise but also contains rich implications. We may speculate the best and the worst outcome of this event by reading between the lines.The briefing reads:

  • 1Referee
    6 years ago 1Referee

    I think it’s a great thing that people can no longer trade there with borrowed money. Especially when you consider how much volatility the price was experiencing as result of that. It’s basically gambling that they do with money they don’t really have. I hope that this will lead to less intensive fluctuations and thus a more stable (as far as possible) market. I just wonder what it will do with their trading volumes when these giant exchanges (huobi, okcoin, btcchina) start implementing fee based trading as is the case with western exchanges. It of course won’t wipe out their fake volumes entirely, but we’ll definitely notice a significant difference. But then again, I am sure that these exchanges will look for ways to avoid these regulations to still offer people the opportunity to trade with borrowed money. Especially when you consider that it was/is a very profitable aspect of their business. I don’t think they will give up on that so easily.

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