Eight Departments Issue Notice to Further Prevent and Address Risks of Virtual Currency Trading and Speculation: Key Points in the Article

Source: CCTV News Client

Recently, speculative activities related to virtual currencies and real-world asset (RWA) tokenization have occurred from time to time, disrupting the economic and financial order and endangering the property safety of the public.

Today, the People’s Bank of China, the China Securities Regulatory Commission, and six other departments jointly issued the “Notice on Further Preventing and Addressing Risks Related to Virtual Currencies and Others.” What are the key points of this notice? Compared to the “Notice on Further Preventing and Addressing Risks of Virtual Currency Trading and Speculation,” issued jointly by the PBOC and ten departments in 2021, also known as Document No. 237, what revisions and clear regulations are introduced for the first time in this “Notice”? An in-depth analysis.

No domestic or foreign entities and individuals may issue stablecoins pegged to the Renminbi outside of China

The “Notice” states that virtual currencies do not have the same legal status as fiat currency. Virtual currencies such as Bitcoin, Ethereum, and Tether do not have legal tender status and should not and cannot be used as currency in the market.

Regarding the recently popular stablecoins, the “Notice” also makes regulations for the first time: without the approval of relevant departments in accordance with laws and regulations, no domestic or foreign entities and individuals may issue stablecoins pegged to the Renminbi outside of China.

Virtual currency-related activities are considered illegal financial activities

The People’s Bank of China states that virtual currencies currently cannot effectively meet requirements for customer identification, anti-money laundering, and other aspects, and pose risks of being used for money laundering, fundraising scams, illegal cross-border fund transfers, and other illegal activities. The “Notice” clearly states that within China, virtual currencies are strictly prohibited, and activities related to virtual currencies are considered illegal financial activities, which must be strictly prohibited and resolutely shut down in accordance with the law.

What specific activities are involved in virtual currency-related operations? The “Notice” mentions that conducting exchange services between legal tender and virtual currencies, exchanging virtual currencies, buying and selling virtual currencies as a central counterparty, providing information intermediary and pricing services for virtual currency trading, token issuance and financing, trading of virtual currency-related financial products, suspected illegal issuance of tokens or securities, unauthorized public issuance of securities, illegal operation of securities and futures businesses, illegal fundraising, and other illegal financial activities are all strictly prohibited and must be shut down in accordance with the law. Foreign entities and individuals are not allowed to illegally provide virtual currency-related services to domestic entities in any form.

Because virtual currencies rely on blockchain technology and support peer-to-peer transactions, breaking through the physical concept of “borders,” related risks are easily transmitted across borders. The “Notice” explicitly states for the first time that, without the approval of relevant departments in accordance with laws and regulations, domestic entities and their controlled foreign entities are not allowed to issue virtual currencies outside of China.

Engaging in RWA activities within China is considered illegal financial activity

This “Notice” also clarifies the concept and connotation of real-world asset (RWA) tokenization and emphasizes that conducting RWA activities within China, as well as providing related intermediary, information technology services, and others, are suspected of illegal financial activities.

Real-world asset (RWA) tokenization refers to the use of encryption technology and distributed ledger or similar technology to convert ownership rights, income rights, and other rights of assets into tokens (digital tokens) or other rights and debt certificates with token (digital token) characteristics, and to issue and trade them.

This “Notice” explicitly states that engaging in real-world asset tokenization activities within China, as well as providing related intermediary, information technology services, and others, suspected of illegal issuance of tokens or securities, unauthorized public issuance of securities, illegal operation of securities and futures businesses, illegal fundraising, and other illegal financial activities, should be prohibited; except for related activities conducted with the approval of the competent business authorities and relying on specific financial infrastructure. Foreign entities and individuals are not allowed to illegally provide real-world asset tokenization-related services to domestic entities in any form.

Continuing crackdown on virtual currency “mining” activities

The issued “Notice” also clearly states that the National Development and Reform Commission, together with relevant departments, will strictly control virtual currency “mining” activities, thoroughly investigate and shut down existing virtual currency “mining” projects, prohibit new “mining” projects, and ban “mining” machine manufacturers from providing sales and other services within China.

Maintaining a high-pressure stance against illegal activities related to virtual currencies and RWA

The “Notice” mentions that since last year, market speculation related to virtual currencies and RWA has been on the rise. Some illegal elements have taken advantage of the situation, engaging in illegal fundraising, pyramid schemes, and other illegal activities under the guise of virtual currencies, RWA, and mining, or using virtual currencies to transfer illegal proceeds, severely harming public property safety and disrupting normal economic and financial order. The “Notice” reiterates that efforts will be made to strengthen cross-departmental cooperation, enhance coordination between central and local authorities, and further improve risk monitoring, prevention, and disposal regulations, maintaining a high-pressure stance against illegal activities related to virtual currencies and RWA.