Experts say that speculation on Bitcoin, Ethereum, Litecoin, and other virtual currencies is a pitfall due to great legal and economic risks, People’s Daily reported on Sept. 18.
Virtual currency should not circulate in the market like normal currencies, as it is not issued by monetary authorities, according to a document released by seven Chinese departments, including the Central Bank, Cyberspace Administration of China, and Ministry of Industry and Information Technology.
The document also pointed out that the issuance, circulation, and transactions of virtual currencies are essentially an illegal financing behavior.
China’s National Internet Finance Association also warned against the risks of virtual currencies, saying that virtual currency has no real value and is likely to become a tool for money laundering, drug trafficking, smuggling, illegal fund-raising, and other criminal activities.
Regulation in the economy is extremely important. Virtual currency, compared with traditional financial products and activities, is not only likely to be a protective umbrella for shadow and black markets, but is likely to result in various risks due to lack of regulations and its subjective value. The result is that the virtual currency will influence the sustainable and healthy development of Internet finance, said Jin Yu, dean of economics under the School of Economics, Shanghai University of Finance and Economics.
Jin added that, it does not mean that virtual currency should be completely rejected, as it also has certain innovative value. However, developers and operators of the currency have the responsibility for popularizing an algorithm’s value to make sure market demand is based on consumers’ real understanding of it, rather than speculation that eventually leads to a pitfall of bubble bursting.
The expert further pointed out that, facing rapid development of Internet finance and financial technology, China needs to pay attention to risk prevention and controls, while also encouraging innovation.
Jin, therefore, suggests that China establish an organization or adopt additional supervision measures for innovative products like virtual currency, in order to standardize their development and ensure transactions are based on real value.