Why is virtual currency trading prohibited in China, but open in Hong Kong? (From CoinsRadar.net):

Virtual currency trading has become a global phenomenon. However, for many domestic investors, they may wonder: Why is virtual currency trading not allowed in China, but allowed in Hong Kong? In order to answer this question, we will analyze this issue in depth from multiple perspectives such as law, regulation and market risks.

We first need to clarify what virtual currency is. Cryptocurrency is a form of digital or electronic currency based on blockchain technology, and its security relies on cryptographic principles. In recent years, with the popularity of virtual currencies such as Bitcoin and Ethereum, discussions on this new asset class have become increasingly heated around the world.

We need to clarify the legal status of virtual currency. In my country, the People's Bank of China and seven other departments jointly issued a notice in 2017, clearly stating that virtual currencies such as Bitcoin do not have the status of legal tender, and at the same time banned the trading activities of domestic virtual currency trading platforms. This regulation is based on the consideration of maintaining financial stability and social order. Due to its strong anonymity and high cross-border liquidity, virtual currency transactions are easily used for illegal fund transfers and money laundering, thus posing challenges to national financial security. In addition, the high volatility of virtual currency prices may also induce speculative behavior and disrupt the normal economic and financial order.

In contrast, as an international financial center, Hong Kong has a relatively open financial market and a more mature financial regulatory system. The Hong Kong Securities and Futures Commission issued guidelines for virtual asset investment funds at the end of 2018, providing a legal operating framework for such funds. This indicates that Hong Kong is more tolerant of cryptocurrency investment and also reflects its intention to promote financial innovation under standardized management.

Next, we have to mention the issue of supervision. The decision to ban virtual currency trading in China is largely based on investor protection considerations. The immaturity of the virtual currency market and the lack of effective supervision put investors at extremely high risk. While allowing trading in Hong Kong, it also emphasizes strict compliance requirements and transparency standards to ensure that investors can trade in a relatively safe environment.

Market risk is also a factor that cannot be ignored. The value of virtual currency fluctuates greatly and is easily affected by various information, including technological changes, changes in market regulatory policies, and even market manipulation by certain individuals or groups. The ban on virtual currency transactions in China helps reduce the risk of ordinary investors blindly entering the market due to lack of professional knowledge.

Of course, we should also see that with the development of blockchain technology and its potential for application in various industries, cryptocurrencies may have a place in the global economy in the future. Therefore, how to balance innovation and risk, freedom and regulation has become a question that policymakers need to think deeply about. Experts and scholars generally believe that establishing and improving corresponding laws and regulations is the key. For example, Professor Zhang, a financial law expert at China University of Political Science and Law, believes that it is possible to consider setting up specific areas or platforms to regulate virtual currency transactions, which not only meets regulatory needs but also does not inhibit financial innovation and technological development.

We can see that behind the fact that virtual currency transactions are not allowed in China and Hong Kong are allowed, there is a comprehensive balance of factors such as national security, financial stability, market order and investor protection. Although the current policy positions are different, both reflect a focus on risks and a cautious attitude towards innovative development. In the future, we look forward to gradually improving relevant policies on the basis of safeguarding national interests and investor rights, and providing a clearer path for the healthy development of the virtual currency market.

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