The large Bitcoin exchanges of China prolong the locking of bitcoin withdrawals, and a director of the Chinese central bank outlines how he wants to regulate Bitcoin; with observation, supervision, licenses, negative lists – and with blockchain technology.
There is a proverb saying that if an official of the Chinese central bank falls on a Bitcoin exchange, the price of the digital currency crashes globally. Indeed, the past few days have seen two development emerge from China, which happened to be accompanied by a fall in the price of bitcoin by more than $100. Both reports strongly indicate that the flourishing Bitcoin market in China will not easily get out of the claws of the People’s Bank of China (PBoC).
Let us start with a small, but nonetheless important and inconvenient news; the three big exchanges of China – OKCoin, Huobi, and BTCC – as well as the smaller exchange CHBTC made an announcement. The note was published at the same time with more or less the same words on all platforms, so it is a safe bet to say it was orchestrated. For example, here is the announcement from OKCoin. The Google translation of the announcement is somehow confusing, so BTCManager also used alternative online-translators like Systran, FreeTranslation or eTranslater.ro.
The announcement informs the users that the period, during which the withdrawal of bitcoin is stopped, will be extended. It explains that the exchange has to comply with all national laws and all regulations regarding Anti-Money Laundering, exchange management, payment, and settlement. To guarantee to do so, OKCoin actively develops and upgrades systems to enforce these rules. Further, the team is in talk with other industry representatives to develop industry standards of self-regulation. As soon as the PBoC has approved the systems, the note explains, customers can withdraw bitcoin again.
Said with other, less polite words: The lock of bitcoin withdrawals on Chinese exchanges, put into effect at February 8 and announced to end after a month, is extended for an unforeseeable time. It is not known how many bitcoin are stuck on Chinese exchanges, but it might be thousands or tens of thousands, worth millions of Dollars. The PBoC has taken all bitcoin on exchanges as a pledge to force the exchanges to satisfy the requirements of the regulation – which, perhaps, cannot be satisfied at all or will be arbitrarily extended if it helps the goal of the PBoC.
The nature of those regulations has been recently outlined in a press conference.
The PBoC Outlines the Shape of Upcoming Regulation
A series of tweets of @cnLedger expands the view on the situation in China. There has been a press conference with Zhou Xuedong, a director of the PBoC, tasked with the regulation of Bitcoin.
Zhou said that in the short-term there must be established a base of rules for the exchange and a negative-list to reduce risks. He engaged regulators to “adopt a forgiving attitude” and “not prohibit exchanges for the time being.” But short-term rules must be made, and the exchanges supervised.
— cnLedger (@cnLedger) March 7, 2017
Later, Zhou continues, the long-term shape of regulation should be explored. Regulators should investigate Bitcoin and its financial properties as well as the management strategies of Bitcoin exchanges. To do so, Zhou recommends to allow a few qualified exchanges with a license or start experimental projects by itself.
Further, Zhou recommends a so-called “negative list” for exchanges. This list contains things exchanges are not allowed to do:
- offering margin trading
- manipulating the market with zero fee trading or faked volume
- violating anti-money laundering rules
- replacing Fiat with bitcoin when buying goods
- evading taxes
- advertising falsely and participating in Ponzi schemes
- offering financial services like loans, securities or futures without a proper licence.
With some of the points, it is not clear if Zhou means that the exchanges should be prohibited to do so – or if the exchanges have to make sure that their customers do not do this? If the second, then the Chinese regulation would contain a blacklist like the BITCrime scientists propose – but with a far wider scope. How should the exchanges be able to prevent that their customers buy things with bitcoin, participate in Ponzi schemes or give loans on unlicensed platforms?
4/ PBoC director implied mining is not included in inspection. Will sync exchanges’ data, may adopt blockchain tech as tool to track money pic.twitter.com/rZ4ka2VrL5
— cnLedger (@cnLedger) March 8, 2017
In the end, Zhou finally talks about miners. With regards to money laundering – which seems to be his primary concern – it is important to supervise the “downstream,” like the withdrawal of bitcoin and Fiat from exchanges. This could mean that miners will not – at least for the time being – be regulated.
Finally Zhou makes an interesting step; he thinks about if it could be possible to use Blockchain technology to monitor the flows of bitcoin and Fiat. For example, you could use a blockchain to synchronize the data of exchanges to detect money laundering and illegal transactions.