Virtual currency transaction

  ”If you don’t stop, you may face conviction and sentencing.” The head virtual currency trading platform person can hardly conceal the anxiety in his heart.
  Following the qualitative virtual currency transaction as illegal, the clean-up actions of Chinese regulators are still escalating-perfecting judicial guidance documents.
  On the evening of September 24, the People’s Bank of China jointly issued the “Notice on Further Preventing and Disposing of the Risk of Hype in Virtual Currency Transactions” (hereinafter referred to as the Central Bank’s “Notice”), jointly with ten ministries and commissions including the Cyberspace Administration of China, the Public Security Bureau and the Public Security Bureau.
  This regulatory document, which is called “the most stringent in history” by people in the currency circle, not only re-emphasizes that virtual currency-related business activities are illegal financial activities, but also for the first time clarified that overseas virtual currency exchanges providing services to Chinese residents through the Internet are also illegal Financial activities.
  On the same day, the National Development and Reform Commission and other 11 departments jointly issued the “Notice on Renovating Virtual Currency “Mining” Activities” (hereinafter referred to as the “Notice” of the Development and Reform Commission), prohibiting new virtual currency “mining” projects and speeding up the orderly exit of stock projects . Some insiders interpret this as a total ban on virtual currency “mining”.
  Subsequently, a number of platforms involving virtual currency-related businesses, including Huobi Global (hereinafter referred to as “Huobi”), successively stated that they would stop providing services to customers in mainland China. On October 13, the other two of the three major virtual currency exchanges (Huobi, OKEx, and Binance are commonly referred to as the three major domestic virtual currency exchanges in the industry) also expressed their views one after another.
  Retirement of related businesses in Mainland China has become a general trend. According to incomplete statistics from a reporter from Caijing, as of October 21, about 33 platforms involving virtual currency have announced the suspension or restriction of providing services to customers in mainland China.
  It is worth noting that with the issuance of the Central Bank’s “Notice”, relevant departments are already studying how to implement regulatory requirements. Several people familiar with the supervision told Caijing reporter that after the central bank’s “Notice” was issued, the public, procuratorate, and law enforcement agencies are conducting research on virtual currency exchanges and “mining” and other related situations, exploring specific paths for conviction and sentencing. It is expected that relevant departments will issue relevant judicial interpretations and regulatory documents in due course.
  ”The Central Bank’s “Notice” is mainly instructive. The public security organs are responsible for the investigation and handling of subsequent specific cases. It is currently impossible to rely on. Therefore, the two high-level governments may have to issue judicial interpretations. If the judicial interpretations are not withdrawn before the judicial interpretations are released, it will be very troublesome. A person from the leading virtual currency trading platform confessed to a reporter from Caijing.
Accelerated cancellation of local local exchanges

  After suspending the registration of new users in mainland China on the evening of September 24, Huobi again stated on September 26 that it plans to complete the orderly withdrawal and withdrawal by 24:00 on December 31, 2021, under the premise of ensuring the safety of user assets. . This means that after this time, mainland Chinese users will not be able to use this trading platform.
  On October 2nd, Huobi announced the clearing and refunding process of the existing user currency and OTC transactions in mainland China.
  In fact, Huobi’s withdrawal of related businesses in Mainland China has long been on the agenda. An insider from Huobi told the Caijing reporter that as early as May this year, Huobi had formulated a relevant liquidation and withdrawal plan. It was originally scheduled to take one year to complete the liquidation and withdrawal before June 30, 2022. However, with the issuance of the Central Bank’s “Notice”, Huobi’s liquidation plan was also implemented six months in advance.
  Coincidentally, some virtual currency exchanges have already made preparations for offline related businesses.
  ”After the Spring Festival this year, we have been prepared. For example, we can go offline immediately if the regulation requires us to take down which product. The original plan was to take the relevant business offline before the end of the year. The situation is not good, so at the end of September, the liquidation plan was implemented as soon as possible.” According to an insider of a virtual currency exchange that has announced the closure of services in mainland China.
  The coming of strong supervision is not without a trace. On May 18 this year, the China Internet Finance Association, the China Banking Association, and the China Payment and Clearing Association jointly issued the “Announcement on Preventing the Risk of Virtual Currency Transaction Speculation” (hereinafter referred to as the Association “Announcement”), directly denying the currency attributes of virtual currencies. Point out that relevant institutions are not allowed to conduct business related to virtual currency.
  Immediately on May 21, Liu He, member of the Political Bureau of the CPC Central Committee, Vice Premier of the State Council, and Director of the Financial Committee, clearly stated at the 51st meeting of the Financial Stability and Development Committee of the State Council to resolutely prevent and control financial risks and crack down on Bitcoin mining. And trading behavior.
  Since then, many local regulators have issued risk warnings, and carried out clean-up and rectification of relevant institutions and activities.
  On June 21, the relevant departments of the central bank asked banks and payment institutions to provide services for virtual currency transactions and asked them not to provide account opening, registration, trading, clearing, settlement and other products for related activities. Or service.
  In the following July, the Beijing Municipal Financial Supervision Administration and the Central Bank’s Business Management Department issued the “Risk Alert on Preventing Virtual Currency Trading Activities” (hereinafter referred to as “Risk Alert”), warning relevant institutions within their jurisdiction not to conduct business activities related to virtual currency. Provide services such as business premises, commercial display, marketing and publicity, and paid diversion. At the same time, financial institutions and payment institutions within the jurisdiction shall not directly or indirectly provide virtual currency-related services to customers.
  At that time, industry professionals close to local financial supervision told Caijing reporters that the relevant warnings were in the “Notice on Preventing Bitcoin Risks” and “Announcement on Preventing Token Issuance Financing Risks” issued by seven ministries and commissions including the Central Bank, and The association’s “Announcement” and other content have been mentioned many times, and this warning was accompanied by further crackdowns.
  The person disclosed that after the issuance of the “Risk Warning”, some virtual currency exchanges within Beijing’s jurisdiction received regulatory notices requesting the cancellation of corporate entities. As a result, some leading virtual currency exchanges cancelled some affiliated companies. “Since then, the situation began to ease. Until this time the Central Bank’s “Notice” was issued, local financial supervision and management once again conducted a thorough investigation, and the crackdown was intensified, and the relevant entities of virtual currency exchanges accelerated the cancellation.
  ” Caijing reporter noted, July 22 this year Beijing Huobi Tianxia Network Technology Co., Ltd. (hereinafter referred to as “Huobi Tianxia”) was dissolved due to a resolution and intends to apply for deregistration. According to public information, Huobi World was established on December 18, 2013, as the previous domestic operating entity of Huobi.com.
  Earlier, on June 24, OKCoin (the predecessor of the virtual currency exchange OKEx), the domestic operating company of Beijing Lekuda Network Technology Co., Ltd., also announced its resolution to dissolve.
Over 30 platforms stop serving Chinese customers

  In fact, earlier in 2013 and 2017, the central bank and related departments issued multiple documents clarifying that virtual currency is a virtual commodity. Financial institutions are not allowed to carry out virtual currency-related businesses, and any organization or individual is not allowed to illegally engage in tokens. Issuance financing activities. Since then, the relevant regulatory authorities have also issued documents to remind the risks and gradually increased the rectification efforts

  Many people in the currency circle recalled that the last time the industry was shocked was the “94” document in 2017 (Reporter’s Note: On September 4, 2017, the Central Bank and other seven ministries jointly issued the Announcement on Financing Risks). The document clearly identified ICO (tokens) as “suspected of illegal sale of tokens and coupons, illegal issuance of securities, and illegal fund-raising, financial fraud, pyramid schemes and other illegal and criminal activities”, and required the suspension of all token issuance and financing activities.
  ”The big bull market of that year was led by ICOs. After being banned, the currency circle collapsed. Some small exchanges went straight away, while the big exchanges issued announcements about shutting down the network and shutting down the service.” A person in the currency circle recalled.
  The Caijing reporter noted that at that time, Huobi (then “Huobi.com”) also issued a trading cessation announcement stating that only the RMB trading business would be stopped, and the rest of the business would not be affected.
  As a result, moving servers and registration locations overseas became the choice of virtual currency exchanges that were active in China at that time, “but it was actually’exported to domestic sales’.” Some people in the currency circle bluntly said that since the last time the exchanges went overseas, they did not shut down their services to users in mainland China.
  In the face of frequent regulatory warnings, why haven’t domestic virtual currency exchanges shut down collectively before this time?
  Several people in the currency circle told the Caijing reporter that while repeatedly emphasizing that virtual currency-related business activities are illegal financial activities, the Central Bank’s “Notice” determined that overseas virtual currency exchanges to provide services to Chinese residents through the Internet are also illegal financial activities. At the same time, it also stipulates that domestic staff of relevant overseas virtual currency exchanges should be held accountable in accordance with the law. This is the key to shocking the industry.
  The Central Bank’s “Notice” pointed out that “for domestic staff of relevant overseas virtual currency exchanges, as well as legal persons and unincorporated persons who know or should know that they are engaged in virtual currency-related businesses and still provide them with services such as marketing promotion, payment and settlement, technical support, etc. Organizations and natural persons shall be held accountable in accordance with the law.”
  Previously, there was no clear certainty regarding the domestic staff of overseas exchanges, and institutions with registered places and servers outside the country could also provide services to users in mainland China. The release of the Central Bank’s “Notice” means that the above actions will face targeted supervision.
  ”For example, if you know that this company is a virtual currency exchange or currency-related illegal business, but you still choose to work here, it is actually involved in illegal financial activities. This is the same as the original P2P platform situation. If this After the platform is filed, there is a high probability that your previous salary will be refunded because it is an illegal asset. From this point of view, the Central Bank’s “Notice” will greatly deter many employees.” Inside a head virtual currency exchange A source told a reporter from Caijing.
  In addition to clarifying that domestic personnel of overseas exchanges cannot evade legal responsibilities, some lawyers who are concerned about the virtual currency field also wrote an article that pointed out that the Central Bank’s “Notice” also needs to pay attention to several points: directly identify that USDT is a virtual currency and is not subject to Chinese laws. Protection; the provision of “pricing services” for virtual currency is also illegal and will be banned in the future; the “information intermediary” model of virtual currency transactions is no longer in a gray area and has been classified as an illegal category; contracts involving virtual currency investment transactions are invalid on the grounds Violation of public order and good customs; focus on the crimes against which the previous crimes of organizing and leading pyramid schemes have gradually changed to crimes of illegal business operations and fraud.
  ”Compared to the crime of organizing and leading pyramid schemes, the Central Bank’s “Notice” identifies related virtual currency transactions as illegal financial activities, so its focus is gradually shifting to criminal activities such as illegal operations and financial fraud. This illustrates the type and type of virtual currency industry to be cracked down in the future. Business types will change. According to this, I think DeFi (reporter’s note: encrypted assets, financial smart contracts and agreements based on smart contract platforms) business may become a target of public criticism.” The above-mentioned lawyer further pointed out.
  According to incomplete statistics from a reporter from Caijing, as of October 21, about 33 platforms involving virtual currency-related businesses have announced the suspension and restriction of services for customers in mainland China (see Table 2). This includes exchanges such as Huobi, BiONE, CoinEX, AEX, Matcha, etc., as well as mining pools including SparkPool and BeePool, as well as mining pools including TokenPocket, etc. wallet.
Table 2: Virtual currency/mining platforms that have announced the closure or restriction of business in mainland China

Source: Caijing reporters sorted out according to public information; the above platforms are sorted by the announcement date, and the statistical deadline is October 21, 2021

  ”I heard that a document with a very strong strike force would be issued at the end of August, so we shorted Bitcoin and Ethereum. Unexpectedly, they rose again in September, causing us to lose a lot. After that, we thought of the so-called strike force. Very strong documents will not be issued again, and I never thought that it will eventually come.” An insider of the virtual currency exchange told the reporter of Caijing.
  It is worth noting that on the same day that the Central Bank’s “Notice” was issued, 11 departments including the National Development and Reform Commission also jointly issued the “Notice” of the National Development and Reform Commission, emphasizing that it is strictly forbidden to add new virtual currency “mining” projects and speed up the orderly exit of stock projects. Some insiders interpret this as a total ban on virtual currency “mining”.
  ”The National Development and Reform Commission governs the production side and the central bank governs the transaction side. This combination of punches is a comprehensive blow to the domestic virtual currency industry, which shows the firm attitude.” An industry insider pointed out.
Exit worries: hidden risks need to be paid attention to

  The market is concerned about whether the virtual currency industry will completely exit in China next.
  ”Most of them will definitely withdraw, but it is hard to say whether they will actually withdraw. At present, some virtual currency exchanges have a rather vague attitude. The reason behind it is that some exchanges do not account for a large proportion of domestic customers, on the other hand. It is that the actual controller behind the exchange is already abroad, and domestic regulatory requirements cannot affect it. The final question is whether to protect the business or the team.” The above-mentioned head virtual currency exchange insider told the Caijing reporter.
  It is worth noting that after Huobi announced that it would liquidate related businesses, the other two major domestic virtual currency exchanges, Binance and OKEx, also expressed their views.
  On October 13, Binance issued a notice stating that it will delist the CNY trading zone at 24:00 (East Eighth District time) on December 31 and will check users in mainland China. According to the notice, if users in mainland China are found, the corresponding accounts will be switched to the “withdrawal only” mode, users can only withdraw, withdraw, redeem, and close positions.

  On the same day, OKEx issued the “Notice on Regulatory Policies in Mainland China”, stating that it has shifted its business focus to the international market since September 2017, and does not promote and serve the Chinese mainland market, and its website cannot be accessed in mainland China. App has also removed all application markets in mainland China. Will continue to maintain the “exit the Chinese mainland market” policy, and will not set up offices and teams in mainland China.
  There are also people in the currency circle who still have hopes for future development, saying that the current strict supervision may have uncertainties in the future. “Now we must definitely cater to the regulation, and maybe it will be adjusted once the limelight passes.” The above-mentioned currency circle said.
  It is worth noting that while Huobi and other virtual currency exchanges announced their withdrawal from related businesses, some exchanges continued to vigorously recruit new customers. According to the screenshots provided by some virtual currency trading platform users to reporters of Caijing, in the WeChat Moments of internal employees of a leading virtual currency exchange, you can see “Huobi.com has issued an announcement to clear mainland users, and registration is required × ×Platform users can contact me and enjoy a permanent 20% off the handling fee” and similar words.
  At the moment, for some virtual currency exchanges that opt-out, they may face considerable challenges.
  Some people in the currency circle told the Caijing reporter that Huobi has a lot of users in China, and this withdrawal can be said to be a self-revolution.
  Regarding the specific number of domestic users involved, Du Jun, the co-founder of Huobi Group, said in a reply to the reporter of Caijing that there is no accurate figure for the number of customers affected by the settlement plan. In addition, the settlement and withdrawal Users in mainland China will have a certain impact on the company’s revenue in the short term.
  Another internal manager of the virtual currency exchange told the Caijing reporter that although the international business share has been deployed and increased before, and the domestic business is gradually shifting to the direction of blockchain technology in accordance with regulatory requirements, the application of blockchain technology is It is difficult to make a substantial breakthrough in the short term. Therefore, there are indeed many internal doubts about whether these transformational businesses can support the company’s new development.
  In addition, the hidden risks in the exit process of virtual currency exchanges also need to be paid attention to.
  ”The impact of the withdrawal of the exchange is not all positive.” Some people in the currency circle told the Caijing reporter that when the funds do not go through the exchange, the crime on the chain will correspondingly become more concealed, and the address cannot be traced. The exchange also has KYC (Know your customer, that is, strengthened review of account holders) and AML (Anti Money Laundering) mechanisms, which can cooperate with relevant departments to conduct verification. If the “one stick” is destroyed, these cooperation I’m afraid that the effectiveness of it will be reduced.
  Some people in the industry have also reminded that it is necessary to prevent the risk of lightning explosions in the exit process of some virtual currency exchanges. “Some exchanges use user funds or make a lot of high-risk products. At this time, they may use their business to exit. A similar situation has been seen in P2P platforms before. In the ebb of the industry, many P2P platforms have been supervised. The tightening of the environment and the tide of running are used as excuses to run away directly and bring considerable losses to users.” A practitioner in the virtual currency industry said.
  Che Ning, deputy director of the Research Center for the Rule of Law and Sustainable Development of China University of Political Science and Law, further pointed out that in the Central Bank’s “Notice” the provision of services by overseas exchanges to China is classified as illegal financial activities, which will involve domestic individuals operating overseas platforms and foreign individuals. Different situations such as providing services within the country; “mining” also has problems such as Chinese citizens participating in “mining” abroad, and how to pursue and implement the legal responsibility of cross-border personnel remains to be explored. In the future, China should strengthen international judicial cooperation, enhance the extraterritorial enforcement of relevant laws and regulations, and jointly crack down on relevant illegal activities.