Although China has started to extinguish the "false fire" of virtual currency speculation since 2017, the so-called "wealth creation myth" in the currency circle has attracted many investors. Now, when regulation comes, losses will expand and ecological operation will not make ends meet. What will be the outcome of this game supported by faith?
Author | Tao Ting
Edit | Han Zhongqiang
Source | City boundary
The speculation is a mirror, the loss is real gold and silver.
In June 2015, the A-share market crashed, and thousands of shares fell by the limit. This year, many people lost so much because they used high leverage to realize their dream of becoming rich overnight. The same is true of the currency circle. In 2021, the price of cryptocurrency will soar, and Bitcoin will become the first asset with global yield. Many people will enter the market with leverage. However, prosperity and extreme decline. In 2022, the wind will change dramatically, the price of cryptocurrency will plummet, and the money speculators will lose all their money. At the same time, the currency circle will also experience a big shock.
On December 20, US time, SBF, the founder of the cryptocurrency exchange FTX, who went bankrupt due to the "thunder explosion", was charged with eight charges by the US prosecutors. If convicted, he will face up to 115 years in prison. Coincidentally, on the same day, lawyers of a group of French cryptocurrency investors said that they had filed a criminal lawsuit against the world's largest cryptocurrency trading platform, Yuan'an, accusing it of misleading the public and promoting its services before the law allowed its legal services. Zhao Changpeng, the founder of Yuan'an and the former richest man of Chinese, was also facing unprecedented pressure.
On December 23, in response to the news that "the Exchange suspended the withdrawal of USDC (a fully mortgageable stable currency against the benchmark US dollar)", "refused to disclose financial information", and so on, although King'an responded on the official website, the outside doubts still remained.
2.5 million yuan lost in six days
Although since 2017, China has begun to extinguish the "false fire" of virtual currency speculation and put "protection locks" on investors' money bags, the "wealth creation myth" of the currency circle has attracted many investors. Zhang Qi from Shenzhen is one of them.
At the end of 2019, Bitcoin took the lead in getting out of the callback market, and then started a round of slump. Zhang Qi, who saw the right moment, began to buy cryptocurrencies, including Bitcoin. In the rise and fall of the market, Zhang Qi also gains and losses.
Until 2020, when the COVID-19 epidemic hit, the United States began to increase the supply of money. Bitcoin broke through several tens of thousands of yuan in March that year, and finally broke through the $60000 mark in April. It was also in the expectation that "Bitcoin is expected to rise by more than 100000 dollars" that Zhang Qi bought more cryptocurrencies.
Stepping on this round of tuyere, he "beat the original 300000 yuan to nearly 10 million yuan". However, changes in the market are always unexpected. On May 19, 2021, the price of Bitcoin plummeted from around US $43000 to US $29000, with a maximum daily decline of 34%. Another virtual currency, Ether, was almost halved.
From that day on, Zhang Qi's investment profit began to give back, and by the end of 2021, it had been cut by about 70%. In the day when Zhang Qi fell 40% - 50%, he fidgeted. "Even eating is silly and numb." This time, Zhang Qi almost lost all his money, calmed down and went to rest. "It's unpredictable and full of risks, and he feels like the largest casino in the world."
Zhang Qi, who stopped, was lucky to escape the great turmoil of the currency circle in 2022, but Hu Yao, who is a post-90s generation in Japan, is not so lucky. He started to buy cryptocurrency in January 2021 after seeing some essays on the social platform that "earn 10 million yuan by speculating in two days". It was also in the beginning of 2021, during the boom of cryptocurrency, Hu Yao's 120000 yuan invested in Ether quadrupled to 500000 yuan.
(Tuyuan/Visual China)
Experiencing the "overnight wealth", Hu Yao invested almost all his money in Bitcoin and Ether in 2022. However, since November 2021, the cryptocurrency market has ushered in a long winter. In particular, after 2022, the collapse of Luna coin in May, the "currency circle Maotai", triggered a great earthquake in the currency circle. On November 11, it reached its peak due to the bankruptcy of FTX.
From November 6 to November 11, in just six days, "I lost 2.5 million yuan. These days, Bitcoin has fallen by more than 20%". On December 19, Hu Yao told the market that "Bitcoin mining is at a loss now, and the money and electricity fees dug out are not enough." On the other hand, Song Feng's life has really changed since he wanted to "change his life against the sky" by speculating on coins.
Before that, although he didn't earn much, he slept well every day and lived a full life. After entering the virtual currency market last May, Song Feng became extremely miserable. He couldn't sleep well watching the market every day. "When the market fluctuated greatly, his heart couldn't stand it." Even if he earned 50000 yuan one night, Song Feng was not happy, but panicked. "I know very well that this is a gambler's behavior, but I felt trapped and didn't want to stop."
Soon, reality gave Song Feng a heavy blow. In December 2022, in the continuous big shock of the currency circle, the European Italian system of the exchange where he bought cryptocurrency appeared a flash crash, and his cryptocurrency could not be sold. After experiencing the extreme pain of approaching the stock market explosion, Song Feng's money earned in the past year, including 50000 yuan earned that night, and more than 10000 yuan of savings, finally lost everything. So far, facing the mess, Song Feng regretted very much. "If I tried again, I would definitely not touch the virtual currency. There is no prospect".
This is just the tip of the iceberg. On May 19, 2021, nearly 600000 people broke their positions and more than 44 billion of funds were wiped out. Since 2022, the position explosion in the currency circle has continued to intensify. According to Glassnode data, by the middle of December 2022, global Bitcoin investors had lost 195 billion dollars, or 1359.7 billion yuan. Most of the holders sold their Bitcoin in the form of "meat cutting".
What happened to the once coveted currency circle?
Behind the turmoil of the currency circle
How brilliant the currency circle was, how turbulent it is now.
There is a story about the currency circle that is widely spread. In May 2010, on a Bitcoin forum, someone bought a pizza worth 25 dollars. He used 10000 Bitcoins. This is the first fair exchange rate of Bitcoin, and the corresponding price is US $0.0025 each.
At the end of 2017, Bitcoin rose to about 16000 dollars; In April 2021, the price of Bitcoin once exceeded $64000. In other words, Bitcoin has increased more than 25 million times in 11 years. If someone invested one yuan that year, it would be 25 million yuan, and 10 yuan would appreciate to 250 million yuan.
However, the coin circle is not only about the rags to riches myth. In 2022, the unprecedented shock of the currency circle will wipe out huge wealth. This "earthquake" began with the flash crash of the cryptocurrency LUNA. On May 9, LUNA, whose market value was as high as 41 billion US dollars, plummeted without warning. In just a few days, its price dropped from nearly $90 to less than $0.00015.
The collapse of the market value of LUNA, which is worth tens of billions of dollars, not only made countless investors lose their money, but also led to the decline of thousands of dollars in the currency circle. Taking Bitcoin as an example, since the early morning of May 10, Bitcoin has plummeted by more than 10% in 15 minutes, and many investors have burst their positions in the session. According to the data of the currency sector, on May 14, Beijing time alone, more than 160000 users of virtual currency contracts across the network broke positions, amounting to 2.12 billion yuan.
The domino effect broke out. Most leading companies in the virtual currency industry "survive" through layoffs and other means. According to CoinDesk, as of November 30, the virtual currency industry had lost more than 26000 jobs in total. Several financial institutions, including Sanjian Capital, a hedge fund at the head of the currency circle, went into bankruptcy liquidation after being exposed that they could not cash user assets.
(Tuyuan/Visual China)
This is a troubled time in the currency circle. From the end of October to the end of November, three leaders of cryptocurrency died suddenly in a short month. As FTX filed for bankruptcy on November 11, its founder SBF was charged with eight charges by the US prosecutors. If convicted on all counts, the SBF can be sentenced to a maximum of 115 years' imprisonment.
Why is the currency circle in turmoil? We must start from its origin. Virtual currency is called from the contrast with real currency. The earliest virtual currency is Bitcoin, which is a peer-to-peer and decentralized digital asset, proposed by Nakamoto, a Japanese, in 2008. Because of the use of cryptographic principles to trade, Bitcoin has also become the earliest type of cryptocurrency. Other cryptocurrencies issued with Bitcoin as a reference include Ethercoin, Lite Coin, Doggie Coin, Quark Coin, etc.
The rise and collapse of cryptocurrency is directly related to the loose monetary policy of the Federal Reserve.
Mark Mobius, the legendary American investor and the "godfather of emerging markets", believes that the dollar money supply has increased by more than 40% in the past few years, which allows investors to have enough cash to speculate in cryptocurrencies. From 2022 to December, the Federal Reserve has raised interest rates seven times. The increase in interest rates will reduce the amount of money available for investment in the market. During the decline of cryptocurrency prices and the US market, some online stable currencies (cryptocurrencies with "anchoring" attribute) that promised to be linked to the equivalent value of legal currencies such as the US dollar but had inherent defects were detonated, thus affecting financing institutions that provide leverage for cryptocurrencies, including exchanges such as FTX.
However, if we want to say the root cause of the great turmoil of cryptocurrency, we must start from the dispute of "whether it has value". Taking Bitcoin as an example, because it is not directly related to the real industry, the rise and fall of its price are separated from the industrial restrictions in the real world and the control of traditional methods. Because of this, as the price of Bitcoin continues to rise, various cryptocurrency scams emerge in endlessly.
More importantly, "the huge transaction volume of the cryptocurrency market is affecting the real currency market of major institutions and even countries, thus bringing new problems of giant influence and national control." Deng Feng, a research institute of Fudan University, once mentioned. For example, Musk once hyped the dog coin with very weak technical foundation, and caused its price to soar.
In addition, the reason why the FTX involved in this accident was accused of money laundering and fraud by the US prosecutors is that there is a huge gap of $8 billion on the balance sheet of FTX. The US Securities and Exchange Commission (SEC) said: "SBF has misappropriated billions of dollars of client funds from the trading platform for its own personal interests and to help its cryptocurrency empire develop."
"The punishment of cryptocurrency has just begun," said Gensler, chairman of the SEC.
In addition to the bad situation of SBF, the founder of FTX, Zhao Changpeng, the founder of Minan, the cryptocurrency exchange and the former "richest man of Chinese", is also in a difficult situation.
The trouble of "the richest Chinese"
Zhao Changpeng, born in Jiangsu, immigrated to Canada when he was young, and set up the Currency Exchange in China in 2017. In 2021, Jin'an will not only become the world's largest cryptocurrency trading platform, but also Zhao Changpeng will become the "richest Chinese" with a wealth of US $95.8 billion.
Zhao Changpeng's personal wealth has shrunk from US $96 billion to US $11.6 billion in this year's currency turmoil, nearly 90% of which has evaporated. When Zhao Changpeng fell from the position of "the richest man of Chinese", Coin An also came to a dangerous moment.
Some media used this paragraph to describe the situation under Minan: the US government investigated it, international bears sniped at it, audit companies abandoned it, 10 billion funds fled it, and 120 million users of Minan were ready to move... The crisis of Zhao Changpeng began when FTX went bankrupt.
At the beginning of November 2022, Zhao Changpeng began to sell 23 million FTX tokens FTT because he was worried about the "death spiral" of FTX (that is, the debt continued to rise, but the economy could not grow). Zhao Changpeng's public selling led FTT token holders to start panic selling, which peaked on November 9.
On the same day, Zhao Changpeng published a document, which roughly means: SBF asked me for help and hoped that I would pay to turn the tide. I promised to save him. However, the next day, Zhao Changpeng sent another article, which roughly means that the FTX hole is too big, and I will not save it. When Zhao Changpeng made it clear that he would not pay, FTX declared bankruptcy on November 11. When the myth of FTX creating wealth was broken, the fate of Minan also changed.
What Zhao Changpeng did not expect was that the disturbance of FTX would bite him back. It is found that the financial status of Jin'an is more opaque than FTX. After all, most cryptocurrency exchanges were not supervised by regulators before the application of Merkel Tree (a method that can verify whether cryptocurrency exchanges misappropriate user funds).
Dangerous signals soon came from all sides. On December 12, KingSecurity suspended the withdrawal of USDC, a mainstream cryptocurrency, for eight hours. This move is considered "abnormal and very dangerous" by the industry; On December 13, investors withdrew $3 billion from Yenan within one day, far exceeding the normal withdrawal amount.
On December 18, Mazer Certified Public Accountants of the United States deleted the audit report on the security reserve certificate on its official website and said that it would no longer provide services for the crypto exchange; On December 20, lawyers of a group of French crypto investors said that they had filed a criminal lawsuit against Cian, accusing it of misleading the public and promoting its services before the law allowed it to provide legal services.
The most lethal force is still to come. The surging news quoted media reports that the US prosecutors are considering ending the money laundering investigation on Yuan'an by "bringing criminal charges against individual executives including founder Zhao Changpeng".
(Zhao Changpeng, Tuyuan/Vision China)
In the face of concentrated "gunfire", Zhao Changpeng and Yuan An tried to show the security of their assets to the public through Merkel tree verification, promoting transparency of assets, frequent interaction with users, etc. However, in the public's view, the key to gaining the trust of users is to publicize transparent financial data.
After a thousand calls, Qian An finally uttered his voice. On December 23, US time, in response to market rumors and news such as "the Exchange suspends the withdrawal of cash USDC", "Mazer Certified Public Accountants and the four major accounting firms refuse to serve Yuan'an", "Yuan'an refuses to disclose financial information", Yuan'an made a response.
Coin An said that during the suspension of withdrawal by USDC, users can still withdraw other stable currencies normally, without liquidity problems. As for the business model, Yuan An said that it mainly earns profits by collecting transaction fees. In response to the news that "accounting firm refused to serve the security of currency", security of currency responded that Mazer accounting firm is not only for security of currency, but for traditional accounting firms, it is very difficult to verify the overall reserve assets on the chain of crypto exchanges.
As for the rumor that "Yuan'an refused to disclose financial information", Yuan'an responded that it is a private company, not a listed company, and its financial health has no external financing needs, so it does not need to disclose detailed financial conditions. In response to the media report that "the US Department of Justice launched an investigation on the security of the currency", the currency security said that this was not the first time for the media to carry out such reports. At present, it was unable to respond to any controversial judicial discussions, and stressed that its own exchanges "have the most compliance permits/licenses in the world, and invest the most in combating crime".
Although King'an responded one by one, it is clear that the external doubts will not dissipate until its financial data are transparent. In fact, the living space of virtual currency is becoming narrower and narrower.
Not much space and time
In the past few months, Huang Lichong, the co-founder of Synergy Strategy Management Group who is familiar with American laws and stocks, has been helping a local fund company in the United States to promote the issuance of virtual currency. The fund company plans to issue new cryptocurrencies such as stable currency. They hope that the project will be launched before June 2023, because the strong global regulation on digital currency led by the United States will be implemented in June. The original plan of this fund company has been clarified, but everything has changed in the bankruptcy order of FTX.
Before the FTX bankruptcy, the situation was also grim. For example, under the promotion of the U.S. executive order, the SEC, together with the Ministry of Finance and other departments, accelerated the legislation of cryptocurrency. For example, in October, the EU passed the landmark Crypto Asset Market Supervision Act, "in some places, as long as the Howey test of the U.S. Supreme Court (the test of whether a cryptocurrency should be classified as securities) The standard will not be defined as a security token (it can be defined as a security token that allows the holder to have appreciation expectations, rely on others to create ecology, operate centrally, use the income for investment ecology or projects, and rely on others to generate profits for the return of investors). " Huang Lichong told the city boundary.
Although according to the above standards, the SEC believes that the logic that any digital currency is a security token is correct, in fact, the SEC does not strictly enforce the law. The bankruptcy of FTX has made the attitude of the US Securities Regulatory Commission become tough and serious. Now they believe that virtual currencies, including functional tokens (generally referring to existing transaction history, distributed ledger or blockchain, non modifiable, decentralized, and transferable without intermediaries), are unregistered securities and violate the securities law.
That is, under the long arm jurisdiction of the U.S. regulators, "as long as it is identified as a 'digital token of investment contracts', it may be cross-border law enforcement if it is marketed and promoted to any U.S. citizen, U.S. tax citizen, U.S. company, or not registered in the U.S. mainland, Hawaii, Puerto Rico, and the U.S. Virgin Islands, or violates the U.S. domestic regulations", Huang Lichong explained.
This means that the cryptocurrency project designed by Huang Lichong is necessary to be adjusted according to the legal framework designed before the FTX bankruptcy order. The old legal suggestions can no longer keep up with the expected regulatory changes. "Even if the project is finally issued successfully, it will also face high legal risks. There is basically no effective way to avoid it. Nor is it possible to hide in an offshore island to solve the problem. In the long run, it will eventually be a chicken feather."
(Tuyuan/Visual China)
In fact, the cost of virtual currency in technical maintenance, ecological chain, supervision and compliance is much higher than that of traditional securities. They all hope to maintain balance of payments by avoiding compliance costs, but even so, it is still difficult for digital currency exchanges to make profits. Coinbase, which is listed in the United States, is considered to be the most mature digital exchange in terms of currency circle compliance, and is also in a state of loss and shrinking revenue.
Coinbase's financial report shows that the third fiscal quarter of 2022 will lose $545 million, which is the third quarter's loss. Coinbase suffered a loss of $1.2 billion in the past 12 months due to the large increase in compliance costs, listing fees and decline in transactions. "In the era of the global hype of virtual currency, exchanges rely on the collection of high issuance and listing fees, with the exception of a few small profits, the rest are still losing money, and need to rely on market manipulation to subsidize costs. When regulation comes, losses will expand, and ecological operations will not make ends meet." Huang Lichong pointed out through analysis. This is one of the reasons why most virtual currencies have come to a dead end. FTX is the most representative example.
This is not the crime of blockchain technology, but similar to the Internet bubble crisis in 2002. Huang Lichong explained that the reduction of costs and the wide range of applications cannot support the operational ecology of exchanges and virtual currencies. When financial losses continue, ecological operators will take risks and form a Ponzi scheme. For example, people manipulate prices, create false markets, sell at high prices after speculation to subsidize operations, and also pledge to a third party at high prices to withdraw loans
Huang Lichong also told the city boundary that although local regulators can also act in non common law areas (common law systems generally refer to common law systems), American regulators can also block customer accounts of banks in other countries that provide US dollar services. Digital currencies with expectation of return are all "unregistered securities issuance", and the approximate rate of "air currency" without real value also violates the securities law
In fact, a campaign of encirclement and suppression is taking place all over the world. According to the 21st Century Business Herald, Jon Cunliffe, Vice President of the Bank of England, said that cryptocurrency and services should be subject to more strict supervision. South Korean regulators stressed that the comprehensive regulatory framework is expected to be completed next year. This means that many cryptocurrencies will be hit globally.
Once this step is reached, investors will stampede if they want to escape. "Losing all their money may be the final destination," Huang Lichong judged. Song Feng is in agony over this reality. On the one hand, he also knows that speculation is a "gamble"; On the other hand, he continued to indulge because he wanted to return to his roots. He didn't know why he was like this.
Although gambling and game design can not stop people from secreting dopamine due to the use of psychological and physiological knowledge, its essence is a confidence game. When people no longer have confidence, the game will end.
(Song Feng, Zhang Qi and Hu Yao are pseudonyms)
(Statement: This article only represents the author's view, not Sina.com's position.)
