by: Arie Guindi Joseph Ning Lucas Garcia Mohamed Bocar Eric Koechlin Bitcoin in China by: Arie Guindi Joseph Ning Lucas Garcia Mohamed Bocar Eric Koechlin

Topics to be discussed: Bitcoin Advantages and disadvantages Tulipmania vs. Bitcoin Regulations in China & Major Concerns Conclusions

Bitcoin What is Bitcoin? The elements integrating Bitcoin? A cryptocurrency created in 2009 by an anonymous user known as “Satoshi Nakamoto” facilitating pseudo- anonymous transactions Main applications so far: Gambling (tax avoidance) Illegal drugs (on sites such as Silk Road) Consumer payments (Newgg, Overstock, and other major US retailers) Cross border transfers (low fees compared to banks) The elements integrating Bitcoin? Miners Addresses(users) Block chain (General ledger) How are transactions processed? P2P currency transactions - verified by other Bitcoin miners Only verified transactions by multiple miners can be added to the Block Chain

Pseudo-Anonymous: Personal Information Secure Advantages Disadvantages Pseudo-Anonymous: Personal Information Secure Scarcity: The supply of Bitcoin is limited to 21 million coins. Blockchain technology (verifiable, authentic) Low transaction fees A fast way to transfer money Anonymous (Allows a way to pay for illicit transactions) Market risk (volatility) Operational risk (DOS attacks) Transaction risk (irreversible) Counterparty risk (No deposit insurance) Legal and regulatory

Is bitcoin simply a speculation like the tulip mania in Holland hundred years ago?

Tulipmania Mania “Insanity characterized by great excitement, extremes of joy and rage, and uncontrolled and even violent activity”

Tulipmania Background Occurred as Holland was becoming a wealthy trading nation: 1634-1637 Tulip Mosaic Virus - Changed the color of tulips Popular taste - stranger color combinations, more popular, extra price People started buying in advance according to expectations of future colors As more people bought it, prices went up, and it seemed like a great investment Financial Markets = “call options” to speculate on price. (Leverage) Extremely high prices, and as some individuals realized gains, prices began to drop dramatically, leading to a tulip panic. Dealers Refused to honor option commitments

Bitcoin: Not a Bubble Bitcoin has utility as a form of payment (medium of exchange, store of value) Scarcity - There was no limit to the number of bulbs being planted, but there will only ever be 21 million bitcoins ever minted Technological advancement (lower transaction costs, faster speed of doing business across borders)

Bitcoin: Definitely a Bubble Massive price run up in recent years. In Holland, the tulip mania collapsed as traders and rational consumers began to cash in when tulip prices peaked. Bitcoin’s price rely on increased demand (bitcoin needs to continue gaining wider acceptance/users) No central authority to hold the market accountable (lack of regulations) Volatility in the rate of exchange back to dollars

Tulipmania 1634-1637 Netherlands Characteristics

Tulipmania vrs. Bitcoin Bitcoin has a utility which is a medium of exchange and a way to store value. (Because there are only 21 million Bitcoins).

Do you think Bitcoin is a bubble?

Why did the Chinese regulators ban bitcoin? Bitcoin had a lot of early adopters in China Vast majority of new bitcoins were mined in China Almost 90% of global trading volume on Bitcoin exchanges happened in China (EX: Huobi, OKCoin, and BTC China) Chinese regulators were initially tolerant of cryptocurrencies Banned banks from exchanging bitcoins for cash in 2014 Shut down all bitcoin exchanges as of September 2017

Major Regulatory Concerns Capital Controls – Easy cross-border transfers provides a way for Chinese investors to evade RMB capital controls. User Anonymity – Allows for the easy conduct of illegal activity (money laundering, gambling, tax evasion, drugs). Consumer Protections – Bitcoin exchanges lack basic investor protections in case of pyramid schemes or transaction disputes. Risky Behavior – Unregulated exchanges engaging in margin lending

Conclusions Bitcoin blockchain technology is a promising financial innovation that has gained widespread adoption and use across many countries Its utilization has gotten the attention of regulators all over the world. Chinese users have played a key part in all aspects of Bitcoin: mining, usage and the world’s busiest bitcoin exchanges Bitcoin has become a channel in China for cross-border currency transfers, various illegal transactions and speculative investments. Overall – We believe China should regulate the use of Bitcoin, leveraging potential applications for blockchain technology while addressing various privacy, legal and regulatory concerns.

References Bitcoin price chart: https://blockchain.info/charts/total-bitcoins Bohme, Rainer, et al. “Bitcoin: Economics, Technology, and Governance.” The Journal of Economic Perspectives, vol. 29, no. 2, 2015, pp. 213–238. JSTOR, www.jstor.org/stable/24292130. Hirschey, Mark . “How Much is a Tulip Worth.” Financial Analysts Journal, vol. 54, no. 4, July 1998, pp. 11–17. JSTOR, www.jstor.org/stable/4480088. Liu, Susan. “Fortune Telling.” International Financial Law Review, Jan. 2017. Proquest, www.search.proquest.com/docview/1872090418/ Ponsford, Matthew P. “A Comparative Analysis of Bitcoin and Other Decentralized Virtual Currencies: Legal Regulation in the People's Republic of China, Canada, and the United States.” Hong Kong Journal of Legal Studies, vol. 9, 2015, pp. 29–51.  Yap, Chuin-Wei. “Too Little, Too Late? China Can't Seem to Get a Grip on Fintech Regulation; Beijing tightens oversight of investing platforms after a surge of money flows sparks concern over financial stability.” Wall Street Journal, 18 Sept. 2017, www.search.proquest.com/docview/1939739008