China has had a strange relationship with cryptocurrencies. During the initial stages of the crypto boom, China was viewed as a major hub for such transactions. This was because the country was home to a large number of crypto exchanges. However, the regulatory agencies of the country disallowed the processing of bitcoin transactions as early as 2013.
This situation had disintegrated even further post-2017 when the country banned Initial Coin Offerings (ICOs). This blog analyzes the brief history and current state of crypto regulations in this Asian nation.
Between 2010 and 2013, Chinese crypto exchanges were in ascendence. In fact, the country was also home to the largest such exchange in the world. However, in December 2013, the People’s Bank of China (PBOC) and six other Chinese regulatory agencies prohibited financial institutions from processing Bitcoin transactions. In 2017, they prohibited initial coin offerings and domestic cryptocurrency exchanges.
According to Chinese criminal law, promoters and organizers of initial coin offerings may face criminal charges if they are Chinese residents. Even if they are not Chinese citizens and the initial coin offering takes place outside of China, they may face potential criminal liability in the country. Further, in January 2018, the National Internet Finance Association of China issued a notice that prohibits the purchase or sale of tokens or “virtual currencies” and the provision of exchange services for fiat currency, tokens, or virtual currencies.
While a ban on mining was considered, the government confirmed in 2019 that it would remain legal but would increasingly be subject to global geopolitical sanctions and export controls. Additionally, bitcoin is regarded as a commodity by the law. China’s Civil Code was amended in 2020 by the Beijing Arbitration Commission to include state-approved cryptocurrencies as inheritable property.
Crypto regulations in the country have continued to evolve in recent years. In May 2021, China announced that it had prohibited all institutions from accepting or using virtual currencies for payment or settlement. Nor can institutions facilitate the exchange of cryptocurrencies for yuan or other foreign currencies. China’s digital yuan, the currency in development at the moment, is not included in this prohibition.
As a result of this regulation, banks and other payment processors will be forced to discontinue their crypto services. Investors should be aware that there is no ban on owning cryptocurrency in China. However, the country’s authorities believe that the prices of cryptocurrencies can be easily manipulated, making them a dangerous commodity to trade. Therefore, China has continued to crack down on such transactions.
The authorities in China will likely continue to tighten their regulations governing cryptocurrencies. Although these digital assets have not been completely banned yet, it is entirely plausible that this could happen in the future.
The country’s decision to come down hard on cryptocurrency transactions has also had a majorly negative impact on the prices of bitcoin, thereby indicating the importance of such a crackdown.
It is evident that China is tightening its crypto regulations. Although holding crypto assets in the country is not illegal, recent developments indicate that crypto activity in the country is likely to reduce going forward.
For more information about the latest cryptocurrency regulations and the possible ways to ensure full compliance, please contact [email protected].