Bitcoin price plummets! The central bank says three major trading platforms are conducting illegal business

The price of Bitcoin on the trading platform Bitcoin China has plummeted!

Earlier, CCTV quoted the Shanghai headquarters of the People's Bank of China as saying that preliminary inspections found that the "Bitcoin China" trading platform had problems such as operating beyond the scope of its business, conducting margin trading business in violation of regulations, and failing to implement third-party custody of investors' funds.

In addition to what CCTV called "Bitcoin China", the Beijing News reported that the Central Bank's Business Management Department issued an announcement on the 18th, saying that since the joint investigation team entered "Bihang" and "Huobi.com", it was initially found that these Bitcoin trading platforms violated regulations in conducting margin trading (Wall Street Journal Note: This is suspected to be a typo, or should be "margin trading"), leading to abnormal market fluctuations. In addition, these platforms have not established relevant anti-money laundering internal control systems in accordance with regulations.

On January 11, the People's Bank of China's Business Management Department and relevant units formed a joint inspection team and entered the Bitcoin and Litecoin trading platforms such as Huobi.com and Bihang to conduct on-site inspections on the trading platforms' implementation of foreign exchange management, anti-money laundering and other related financial laws and regulations, and relevant regulations on trading venue management. The above report quoted a person from the public relations department of Bihang as saying that the inspection is still ongoing and the results are expected to be available around Friday.

The Beijing News quoted Huobi founder Li Lin as saying that the inspection is still ongoing and that they will actively cooperate with the inspection, and everything is subject to the official announcement of the central bank and relevant departments.

"Financing" and "Rongbi" are services launched by the Bitcoin platform to magnify investors' returns. Bullish investors borrow funds several times the principal from the platform through "financing" to buy Bitcoin, and then sell it when the price is high to repay the platform loan and pay the service fee, thereby obtaining magnified returns; similarly, bearish investors borrow Bitcoin through "Rongbi" to sell, and then buy it back when the price is low, thereby magnifying their returns. This model of leveraging large returns with small principal is called "leverage".

On the 11th, 21st Century Business Herald quoted Zhang Hua, vice president of Leiying Enterprise, as saying that Bitcoin has a high leverage problem. "At present, Bitcoin leverage trading is relatively popular. The general leverage ratio in the industry is about 3 times. On January 5, the price of Bitcoin fluctuated by 32.55% throughout the day. On that day, some leveraged investors were liquidated."

Recently, Bitcoin prices have been fluctuating frequently. For example, in 2017, the price increased by more than 10% in just four days, and at the end of last year, it even set a rare record of a 14% increase in three days. In 2016, the price of Bitcoin increased by more than 200%, not only exceeding any currency pair in the foreign exchange market, but also surpassing star products such as real estate and black metals.

The abnormal fluctuation of Bitcoin has triggered the intervention of regulators. On the 6th of this month, the central bank and its Shanghai headquarters interviewed three Bitcoin exchanges - Huobi.com, Bihang and Bitcoin China in Beijing and Shanghai respectively, asking them to conduct self-inspections on recent abnormal situations and carry out corresponding rectification. Tencent Finance said that the State Administration of Foreign Exchange also investigated several major domestic Bitcoin trading platforms on January 6, perhaps to investigate the recent behavior of transferring assets through Bitcoin to bypass foreign exchange controls.

According to TechWeb, recently, the three major domestic Bitcoin trading platforms - Bitcoin China, Huobi, and OKCoin have all taken partial "deleveraging" measures and restricted or suspended the "financing" and "coin financing" of Bitcoin spot.

BTCChina, Huobi.com and BiXing are the three largest bitcoin trading platforms in China. Data from these three exchanges show that in 2016, China’s bitcoin trading volume accounted for 93% of the global trading volume.

However, many media reports previously claimed that such a large trading volume was inflated by domestic exchanges themselves. The Paper quoted industry insiders as saying that “inflated volume” is quite common in domestic exchanges, and there are two main purposes: one is to “use beautiful data to attract investors”, and the other is to make people who invest in Bitcoin regard it as a reliable platform, playing the role of “data endorsement”.

Bitcoin China's Bitcoin price fell below the 5,800 yuan mark, and the intraday decline further expanded to more than 7%:

Here is the Bitcoin price on Huobi, which has dropped more than 3% but is still above 5,800 yuan:

The Bitcoin price on BiXin is also above 5800: