Until recently, the Chinese bitcoin exchanges did not charge a commission for transactions. For most crypto-exchange exchanges, this is the main source of income. How did the Chinese exchanges make a profit? Now, at least part of this mystery has become public knowledge.
The two largest crypto-exchange exchanges in China, Huobi and OKCoin, together invested about 1 billion yuan ($ 150 million) of money from their clients who were not actively engaged in "money management products", which are often highly profitable, but risky. All the profits from such investments came to the exchanges, not to customers. This is reported by Xinhua, in the news of August 17 (reference in Chinese), referring to the investigation of the People's Bank of China. On the same day, when it became known about this investigation, bitcoin reached a record level of 4,500 dollars.
On August 21, Xinhua also published another note (a reference in Chinese), in which he urges his readers to be cautious about the recent growth of bitcoin. "New technologies are developing very quickly, but regulators should not lag behind and keep up with them," the article said, urging the government to close the dubious bitcoin-exchanges and not turn a blind eye to the violations that are taking place there.
In the report Xinhua, to the burning, there are no podrorosti investments of these crypto-exchange exchanges in risky products. European and American crypto-exchange exchanges usually store customer funds, but do not use them, but as practice shows, this does not apply to their Chinese counterparts.
Huobi declined to comment on this matter. And the head of OKCoin Star Xu said:.
We at OKCoin adhere to the strict policy of placing free cash funds of customers in banking products with a low level of risk. This policy is consistent with global financial practice, this is done mainly to protect the funds of customers. We refute the statements about the contrary, as clearly false.
The Central Bank of China, fearing a capital outflow and money laundering, has tightened control over bitcoin trading in recent months. Earlier this year, the People's Bank of China launched an investigation into the activities of major bitcoins of exchangers, including Huobi and OKCoin, and warned of the possible risks that work on these platforms entails. In response, Huobi and OKCoin stopped working with the zero commission, and also stopped providing services for margin trading, which allowed customers to borrow the yuan or bitcoin to increase their rates. The exchanges also suspended the withdrawal of bitcoins and activated the possibility of withdrawing funds only about two months ago. These events put an end to China's domination on the world market of bitcoins.
Employees of the Beijing bitcoins of stock exchanges and purses through which users send and receive bitcoins report that their companies should now inform the People's Bank of China about suspicious activities on their platforms on a weekly basis. Chinese authorities are preparing to exit a new package of laws that will regulate activities related to crypto-currencies. For example, now, according to the document of 2013, Chinese banks are forbidden to act as custodians and to keep money of clients of crypto-exchange exchanges, which is common for Chinese stock brokers.