The People's Bank of China is required to closely monitor transactions related to cryptocurrencies, making it more difficult to buy and sell digital assets domestically.
On December 31, the South China Morning Post reported that China's foreign exchange regulator had issued new regulations requiring domestic banks to strengthen monitoring and reporting of high-risk foreign exchange transactions, including those related to cryptocurrency assets. This regulation is seen as the latest step by Beijing to tighten control over the cryptocurrency market, which has been banned since 2019.
Specifically, Chinese banks must monitor and report foreign exchange trading activities related to cross-border gambling, underground banking systems, and illegal cross-border financial activities involving cryptocurrencies. The monitoring will be based on the identities of individuals and organizations involved, the source of funds, and the frequency of transactions.
According to lawyer Liu Zheng Yao from the Chi Hanh Law Firm, this regulation provides additional legal grounds for handling cryptocurrency transactions and demonstrates China's firm stance on cryptocurrencies that may continue to be upheld. Particularly, the use of the Renminbi to purchase cryptocurrencies before exchanging them for foreign legal tender could be considered cross-border activity under the new regulations, complicating efforts to circumvent foreign exchange rules through cryptocurrencies.
Mixed signals from China's cryptocurrency market
China has banned cryptocurrency trading since 2019, citing the need to reduce energy consumption from mining activities and greenhouse gas emissions. Financial institutions are also prohibited from handling digital assets and cryptocurrency mining activities.
However, according to Bitbo's Bitcoin Treasuries tracker, China currently holds 194,000 Bitcoins, equivalent to about 18 billion USD, ranking second in the world. This amount of Bitcoin was not purchased by China but was seized from illegal activities. The contradiction between the government's strict stance and this significant amount of Bitcoin held shows the complex picture of the cryptocurrency market in China.
The number of countries holding Bitcoin. Source: BitcoinTreasuries.NET by Bitbo
Although the Chinese government continuously implements restrictive policies on cryptocurrencies, some experts still believe in the potential of this market here. Zhao Changpeng (CZ), former CEO of the cryptocurrency exchange Binance, stated that China could be one of the countries to adopt a Bitcoin reserve strategy in the future. According to him, China has the ability to implement policies quickly if it wants to, and 'the government will have to do it at some point.'
