China Tightens Grip on Crypto Trading with New Forex Rules

On December 31, 2022, the Chinese foreign exchange regulator introduced new rules requiring banks to monitor and flag risky trades involving crypto assets. The move is likely to make it more difficult for residents in mainland China to buy digital assets.

Risky Trades: A New Definition

Under the new rules, banks must monitor and report on risky forex trading activities, which include cross-border gambling, underground banks, and illegal cross-border financial activities involving crypto assets. Chinese regulators also require banks to track the activities based on the identity of individuals and institutions involved, their sources of funds, and the frequency of their trades.

The Impact of the New Rules

Liu Zhengyao, a lawyer at ZhiHeng law firm, stated that the new rules will provide another basis for punishing crypto trading. He added that China’s regulatory stance toward crypto may continue to tighten. According to Zhengyao, using yuan to buy crypto before exchanging it for foreign fiat currencies may be considered cross-border activity under the new rules.

"It will be difficult to circumvent the country’s forex rules through crypto under the new regulations," said Zhengyao.

China’s Anti-Crypto Stance Continues

China has banned crypto transactions since 2019. The Chinese government stated that it aimed to reduce energy expenditures from mining and greenhouse fuel emissions. Financial institutions were also prohibited from dealing with digital assets and crypto mining.

A Contradiction in China’s Crypto Policy?

Despite its anti-crypto stance, China ranks second when it comes to the number of Bitcoin (BTC) held per country. According to Bitbo’s Bitcoin Treasuries tracker, China has 194,000 BTC, which was worth about $18 billion at the time of writing.

How Did China Accumulate Its Bitcoin Holdings?

The country’s Bitcoin holdings were acquired through asset seizures linked to illicit activities. This raises questions about the contradiction between China’s anti-crypto stance and its possession of a significant amount of Bitcoin.

A Potential Shift in Policy?

Former Binance CEO Changpeng ‘CZ’ Zhao stated that it will be one of the countries to adopt a Bitcoin reserve strategy. At the Bitcoin MENA event in Abu Dhabi, Zhao said the country could move fast on policies if it wanted to.

"The government must do it at some point," said Zhao.

The Implications of China’s Crypto Policy

China’s new forex rules are likely to have far-reaching implications for the global crypto market. The country’s significant holdings of Bitcoin and its potential adoption of a Bitcoin reserve strategy could signal a shift in policy.

However, the introduction of new regulations is likely to continue to tighten the noose around crypto trading in China. As Zhengyao noted, using yuan to buy crypto before exchanging it for foreign fiat currencies may be considered cross-border activity under the new rules.

The Future of Crypto Trading in China

The future of crypto trading in China remains uncertain. While the country’s anti-crypto stance continues, its significant holdings of Bitcoin and potential adoption of a Bitcoin reserve strategy could signal a shift in policy.

As the global crypto market continues to evolve, it will be interesting to see how China navigates its complex relationship with digital assets.

Timeline of China’s Crypto Policy

  • 2019: China bans crypto transactions.
  • Present day: China introduces new forex rules requiring banks to monitor and flag risky trades involving crypto assets.

Why the New Rules Matter

The introduction of new regulations is likely to have far-reaching implications for the global crypto market. The country’s significant holdings of Bitcoin and its potential adoption of a Bitcoin reserve strategy could signal a shift in policy.

Key Takeaways

  • China has banned crypto transactions since 2019.
  • The country’s new forex rules require banks to monitor and flag risky trades involving crypto assets.
  • Despite its anti-crypto stance, China ranks second when it comes to the number of Bitcoin held per country.
  • The country’s significant holdings of Bitcoin were acquired through asset seizures linked to illicit activities.

References

  • South China Morning Post: "Mainland China introduces new forex rules requiring banks to monitor and flag risky trades involving crypto assets."
  • Bitbo: "Bitcoin Treasuries tracker"
  • Binance CEO Changpeng ‘CZ’ Zhao at the Bitcoin MENA event in Abu Dhabi

Note: The references provided are for informational purposes only and do not constitute an endorsement of any product or service.

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