Since the beginning of 2009, people (or institutions) under the pseudonym of Nakamoto launched bitcoin, the virtual currency with decentralization features has become the first “killer” Application of blockchain. Nowadays, the virtual currency represented by bitcoin has formed a long industrial chain from upstream “mining” to downstream transactions, trusteeship, pledge lending, storage and so on. In this chain, the most core position is the virtual currency exchange with central characteristics.
However, after September 2017, under the one size fits all domestic regulatory policy ban, there is theoretically no virtual currency exchange in China. At present, the exchanges that provide virtual currency transactions to Chinese residents are either in the form of private commercial institutions registered overseas or are actually “underground” exchanges. The former has problems in compliance, while the latter is a typical “illegal operation”.
All exchanges are outside the control of China’s financial regulators. The exchange collects the public’s amazing amount of virtual assets, but there is no effective supervision. I think that the risk of the exchange is the greatest, which should be effectively prevented in advance. In February 2020, fcoin, once the “Star” exchange, suddenly declared “Thunderbolt”, resulting in a fund deficit of up to 90 million usdt for investors, which confirmed this huge risk! Since fcoin released huge loss information, the website platform collapsed, causing a large number of investors panic. Most of fcoin’s investors are Chinese, and there are even some “big alligators” with rich investment experience. Zhang, the boss of the exchange, is said to have left the country for a long time. Some angry investors besieged Zhang’s family in Hangzhou to report to the police station. However, judging from the current situation, policies and regulations, it is not easy for investors to rely on regulators and law enforcement agencies to recover their losses.
(below is Babbitt’s report on fcoin)
What problems does the stock exchange show and what lessons and inspirations does it give to investors?
The author believes that, first of all, there are thousands of exchanges in the world, most of which have not been effectively regulated except for the United States, Japan and other limited countries. In 2017, China’s regulatory policies prohibited the establishment of domestic exchanges, and made it clear that investors should take their own risks in virtual currency investment. At the same time, China’s financial regulatory agencies do not have overseas regulatory authority, and law enforcement agencies are involved in huge costs and even difficulties in diplomatic coordination when enforcing laws on exchanges suspected of infringing upon the rights and interests of Chinese investors. As a result, when investors buy and sell virtual currency on the exchange, they can only “seek more happiness for themselves”, which is absolutely weak!
Second, a large number of exchanges open to Chinese residents have no supervision and do whatever they like. It publishes all kinds of suspected fraud or inducement advertisements on official websites, microblogs and industry information websites, especially to lure investors who have no risk-taking ability or risk identification ability to participate in high-risk leverage contracts and futures trading. Every time the virtual currency “roller coaster” market, all lead to a large number of investors “violent positions”, heavy losses, but there is no way to complain.
Third, in many exchanges, a large number of small exchanges which are unknown to the public in order to “get on top” in the market in time, launch no bottom line competition strategy to attract investors who have lost their sense in the pursuit of profits. For example, in a thunderous exchange, its actual controller claimed that “XX (the platform currency issued by it) is 100 (up 100 times), and the villa is close to the sea”, and many of them are like crucian carp crossing the river for a time! It is very impressive that such a clear commitment to high yield is suspected of fraud, but even senior investors have not yet awakened. In recent years, individual head exchanges have even hired hot female customer service to “seduce” potential investors online. No bottom line strategy, like an infectious disease, is spreading around the industry, aggravating the risk.
Fourth, the actual controllers of some exchanges with Chinese background have long left China, staying abroad for a long time, and even investing in a large number of overseas luxury real estate. It is deliberately far away from the jurisdiction of China’s law enforcement authorities, and is essentially ready to run for the future or deal with the thunderstorm of the exchange. Once thunderbolt, what can investors do? However, investors are rarely aware of such exchanges in advance. Some investors even put all their assets in an exchange, which is equivalent to baking themselves on a volcano.
Fifthly, the actual controller of a large number of exchanges is unknown, and the registered address and office address are unknown. For example, the U.S. Attorney General’s Office (OAG) in September 2018 issued an investigation report, clearly pointed out that the exchange“ Gate.io …… There is no public source of information about the geographic location of its operators. However, in a written submission to OAG, the company said its platform operations were mainly conducted in China. ” It’s similar to an investor putting assets in a stranger’s pocket. These “strangers” may embezzle other people’s assets wantonly, or take away investors’ assets directly by means of “feigning death”. The high risk is self-evident.
Sixthly, the virtual currency is continuously traded around the world in 7×24 hours, without limit board and limit board. Without supervision, all kinds of financial derivatives are rampant. A large number of Chinese investors have suffered heavy losses due to thunder, running away, stealing money or positions in the stock exchange. The risk is at least 10 times higher than that in the stock market. Investors have no knowledge of the risk of the exchange, which fully shows that the first risk control is the investment of tens of millions of blockchain! Effective risk awareness and risk prevention is the way for investors to settle down!
Finally, I believe that China’s financial regulatory policies need to be reshaped, from the focus on cleaning up and rectification, to focusing on consumer protection, and using iron handed means to severely crack down on the relevant actors suspected of fraud and other serious crimes.