Exclusive: Truth and Rumor. A chinese perspective on the situation of chinese exchanges

A Chinese perspective on developments in China. Our author, Zhang Weiwu, lives in China and has been active in the Bitcoin scene since 2011. Here, he explains how to understand the current rumours about the so-called ‘Bitcoin ban’ on April 15th, why not everything means what it seems to in China, and how the Chinese exchanges will comply with the legislation.

Top Chinese exchange Huobi, whose name means ‘Fire Coin’ in Chinese, must be feeling the heat today: in a pre-emptive move, it is closing 3rd party payments for cash deposits before being forced to do so. It has also made a lengthy announcement, stating that its banks have not received an order to close their accounts – yet. Will they meet the same end as their smaller competitors, BTC38 and FxBTC, who made rare headlines today when they announced that they were stopping bank deposits, stating that their banks had received an order from the PBOC to close their accounts? Or worse, will they suffer the same fate as BTCIG.com, an even smaller competitor, whose website simply went offline today.

Should I feel flattered? I made this prediction in bitcointalk before both the height of the China frenzy and bottom of its crash, and I was right both times. I was even right about the method in this post, from 9 th January: ‘It [the Chinese government] will not declare a war against bitcoin but cripple bitcoin operations in China.’

Many consider the Chinese government to be capricious. Are you banning bitcoin? Are you allowing it? What do you mean by saying individuals are allowed to trade Bitcoin, if you’re forcing all your exchanges’ bank accounts to close?

Words often do not mean what they appear to say

Let’s recap the ‘notice’ given on 5th December 2013: ‘Financial institutions are not allowed to offer services related to bitcoin, including registration, trade, clearance and settlement.’ Isn’t this ambiguous? If a bank allows an exchange to open an account, does it count as indirectly offering services related to bitcoin? If I lend a knife to a guy and he kills someone, am I indirectly assisting a murder…? Do I carry responsibility for checking anyone I lend a knife to? ‘Of course not,’ says Bobby Lee of BTCChina, but he did not grow up here and he hasn’t lived through what we have.

The Chinese themselves, however, find such ambiguity quite pedestrian. Many Chinese were caught by surprise at the harsh ban, but none were surprise it was delivered in such a manner. In China, words often do not mean what they appear to say – especially in official announcements.

People living in the First World gain confidence in the honesty of such announcements through experience. If, on some serious issue, you do not mean what you say, others can easily challenge you in the courts – at which point you lose face, honour and money. However, if there is no independent legal system, if the court is run by the ruling party, then the game changes. No matter how they are expressed, if you pretend not to understand your rulers’ intentions then you are playing a dangerous game. The wording of such announcements is often twisted to serve the rulers’ purposes, and the servants and slaves learn what that is by reading
between the lines.

Many forget that this also happened in the West before an independent legal system was established. Watch a historical drama set, for example, in renaissance-period Italy, where the power struggle between families and cities was at its climax, and you’ll hear such ambiguous language there, too.

“You know what I mean …”

This has become an inside joke in China. If you live in China, you will often hear the words, ‘You know what I mean.’ You might say that the Chinese are skilled at solving this particular puzzle of guessing the true meaning of official statements. The Chinese have formed a strange habit of half saying things, or saying something with codewords, and closing the conversation in the middle with that phrase, ‘You know what I mean.’

The PBOC have stated that their attitude towards bitcoin has never changed. China allows bitcoin trade, but forbids financial institutions from participating. ‘Participating’ can mean just about anything from issuing a bitcoin ETF, through to creating services that allow people to buy bitcoins in a bank’s offices (many bonds are sold this way), to simply allowing exchanges to open bank accounts. Now, their original rule is being interpreted in its strictest sense. You know what I mean, right?

That means that we (PBOC) were not sure how to deal with bitcoin in the beginning. Now, though, we have made up our mind: forget it. But given that we don’t own bitcoin (yes, we have enough money to buy up the market cap of bitcoin half a million times over, so let’s just say we don’t own bitcoin for now), we would look silly if we tried to ban something ubiquitous in the rest of the world. Especially when those wise bankers in Germany see it as a viable thing. Besides, we are too lofty and important to argue with you whether or not bitcoin is a good thing. We will simply force you out of business, leaving the point to be mooted by internet experts who have too much time to kill. You know what I mean. We have it under control here, and it’s time for you to pull out of the game.

How the exchanges react:

The exchanges’ reactions, in typical Chinese style, might be interpreted as follows:

Huobi: voluntarily stopped receiving payments from third parties.
“With four out of 15 of the named exchanges going out of business in one day, I’d expect to be forced to close our account soon. Perhaps there is still a chance that our lord will change his mind? After all, the fallen exchanges are small. Maybe I will be allowed to live and a lesson will suffice. I should endear myself to PBOC – it’s now or never! I will stop receiving 3rd party payments as our lord intended. I will do so before he gives the order. If I obey, there is no need for punishment.”

BTCChina: Did nothing
“I showed willing to subject myself to scrutiny many times. I was the first to begin self-regulation. Now our lord chooses to act without giving us audience – not even us. That means only one thing: he doesn’t want obedience, just our undoing.”

BTC38: Stopped receiving deposits
“We are going to follow strictly the central bank’s notification and regulation, and suspend deposits.” Suspend: ok. The PBOC notification said they were “not allowed”, but what can I do except hope that our lord changes his mind? I must leave the possibility of returning to business open.”

OkCoin: Stopped receiving payments from third parties.

“We have prepared contingency plans to continue operating. But in these sensitive times, we cannot say more.” The plan is simple: if our lord changes his mind, we will remain obedient and continue to operate. If, however, it is not obedience that he wants but my life, then I won’t quit without a fight. See you in Hong Kong!”

FxBTC: Stopped receiving deposits

“We mean what we said: “Some banks treated us harshly, even ordering the account to be closed tomorrow, with 24 hours notice. This is not a rumour.” And “The threat is clear: if the accounts are not closed, they will be frozen. We decided to stop receiving all deposits, and to stop all cash withdrawals by bank transfer. We will allow withdrawal through 3rd party payment until they notify us otherwise. There is nothing we could do.”

BTER: Stopped receiving deposits

“Do you know why we dare to say “Even by the end of the world there will still be believers” in our statement? (This was later removed.) It’s because we’re in Canada. We don’t have an office in China, we are not a registered Chinese company, and we never even had a bank account to receive deposits – it was always done by a 3rd party. We have no god or master. Now that our 3rd parties have been forced to quit, we cannot do business. Let’s just say, Bon Voyage – it was a pleasure doing business with you!”

BTCIG.com: website down

“Do you really think we’re going to keep our fiduciary obligations when there’s no profitable future for us…?”

BtcTrade: Stopped 3rd party deposits

“We’ll let you know when we figure out what’s going on.”