The China Financial Stability Report is a summary report on China's finance this year written by the Financial Stability Analysis Group of the People's Bank of China. Since the first appearance of cryptocurrency in the China Financial Stability Report in 2017, cryptocurrency has gone from being insignificant to a scourge and then to being objective and rational in the China Financial Stability Report over the past seven years. Combined with what Zhao Changpeng said, "China may need to reserve Bitcoin," it seems to herald the day when mainland China will open up the crypto industry.
2017: The year the cryptocurrency industry hit a freezing point
This year, (Announcement by the People's Bank of China and seven other departments on preventing the risks of token issuance and financing) banned initial coin offerings (ICOs) and virtual currency exchange operations, and required financial institutions and non-bank payment institutions not to conduct businesses related to token issuance and financing transactions, directly bringing the cryptocurrency industry to a freezing point.
For cryptocurrencies, this catastrophic event is merely summarized in 26 characters in (China Financial Stability Report 2017). The last paragraph of Chapter 3, Section 2 states, 'There are certain risks associated with specific virtual goods such as Bitcoin attracting investors to follow suit in speculation.'
2018: Increased crackdown efforts
On August 24 of this year, the China Banking and Insurance Regulatory Commission, the Central Cyberspace Administration, the Ministry of Public Security, the People's Bank of China, and the State Administration for Market Regulation jointly issued (a risk warning regarding the prevention of illegal fundraising under the guise of 'virtual currency' and 'blockchain'). In late August, the Chinese government also shut down 124 websites operated by overseas crypto exchanges. On December 8, Pan Gongsheng, Vice Governor of the People's Bank of China and Director of the State Administration of Foreign Exchange, mentioned that the overall risk level of this sub-industry had decreased during this period due to various deployments. He also noted that with the recent tightening of global controls over ICO activities, some institutions are again promoting STO (Security Token Offering). In China, it remains essentially an illegal financial activity. (Sina Finance (2018 Annual Review of Global Blockchain Regulatory Policies)).
In (China Financial Stability Report 2018), an unprecedented special topic introduced the risks and prevention of cryptocurrencies. The reason for this is that after the '9.4' incident, the crypto circle ushered in a bull market in 2017, with the global market value of crypto assets surging from 16.1 billion USD to 572.9 billion USD.
In the section addressing issues and challenges in crypto asset-related fields, the report lists three problems: 1. Disordered industry development with strong speculative tendencies. The surge in cryptocurrencies is a boon for retail investors, but poses a challenge for regulators. 2. Difficulties in protecting the legal rights of investors. Many of the various altcoins in the early stages of industry development are tools for cutting leeks, easily leading to collective risks. 3. Vulnerability to illegal criminal activities.
Additionally, the report frequently mentions the real economy, aligning with the Chinese government's consistent emphasis on the real economy and advocating for financial services for the real sector.
2019: Support blockchain but crack down on cryptocurrencies
This year, the state first supported blockchain technology, seemingly heralding a spring for the crypto circle. But soon after, the government intensified its crackdown on cryptocurrencies. The dual attitude of the Chinese government towards blockchain technology and cryptocurrencies has become the main tone until today.
(China Financial Stability Report 2019) reflects the same, presenting the risk-free exit of virtual currency trading and token issuance financing platforms as an achievement in rectifying financial order, while also encouraging crypto technology to support the expansion of other types of technological applications.
Additionally, the Basel Committee on Banking Supervision has begun to study regulatory schemes for cryptocurrencies. The progress of this regulatory scheme will become a fixed topic for the next few years.
2020: The crypto circle became insulated from mainland China
Major countries worldwide are launching regulatory attempts regarding cryptocurrencies, with each move affecting the ups and downs of the crypto circle. However, all of this is unrelated to China. Nevertheless, (China Financial Stability Report 2020) still closely monitors the regulatory status of cryptocurrencies in various countries and international organizations, though the attitude is one of 'threat and risk.'
2021: Banned mining and further cracked down on the crypto industry
The Chinese government issued notifications (from the National Development and Reform Commission and other departments regarding the rectification of virtual currency 'mining' activities) and (about further preventing and dealing with the risks of virtual currency trading speculation). Miners have moved away from the mainland, but everything else remains the same. It's darkly humorous that the publication dates of the two documents are September 3 and September 15, making it hard not to feel that relevant leaders intended it this way.
(China Financial Stability Report 2021) only mentions cryptocurrencies in two places, the first being 'strengthening the regulation of financial activities of platform enterprises, cracking down on Bitcoin mining and trading activities.' The second is 'the special rectification of internet financial risks has achieved good results... the rectification work in areas such as virtual currency trading... has basically been completed and has entered a state of normalized regulation.'
2022: The overall attitude is more neutral.
(China Financial Stability Report 2022) extensively reports on the regulatory actions of international financial institutions such as the Financial Stability Board (FSB) and the Basel Committee on Banking Supervision (BCBS) regarding crypto assets during 'international financial regulatory reforms and implementation progress,' while briefly tracking the progress of U.S. regulations on crypto asset oversight. This year, although it still mentions a severe crackdown on illegal financial activities such as virtual currency trading speculation, the overall attitude towards the crypto industry is more neutral.
2023: The tide has turned, but risks still deter people.
As the scale of the crypto market grows and becomes compliant in various countries, even the Chinese government cannot ignore the crypto industry. (China Financial Stability Report 2023) for the first time includes crypto assets in 'other industries and emerging risks' for detailed introduction for higher-level reference.
At the same time, international regulatory attempts on crypto assets led by the United States are also detailed.
However, the collapses of Luna and FTX in 2022 have caused the Chinese government to revert to a negative stance towards the crypto circle.
2024: Learning amid hesitation
This year's compliance progress of cryptocurrencies in various countries, especially the United States, has greatly changed the attitude of the Chinese government. (China Financial Stability Report 2024) introduced the approval of the U.S. spot ETF, the EU's first complete and clear regulatory framework for virtual assets (Crypto Asset Market Regulation Bill), and related regulatory bills in the UK, Singapore, and Japan. Particularly noteworthy is the extensive introduction of Hong Kong's regulatory situation under the title 'Hong Kong actively explores crypto asset license management.' Another highlight of this year's report is the full publication of the (International Regulatory Framework for Crypto Assets) released by the Financial Stability Board.
One can feel that, in the face of the overwhelming tide of crypto, China's financial regulatory authorities have shifted from a negative to a neutral stance. It is also evident that Chinese financial regulators have closely monitored the international regulatory process for crypto assets, and although crypto asset trading has not yet been opened, they have been actively researching and learning from the relevant regulatory attempts of advanced financial countries and international financial organizations led by the United States.
So, will China open up the crypto industry?
Zhao Changpeng said it is not difficult to understand that the Chinese government will accept Bitcoin. The reasons the Chinese government initially banned crypto asset trading were: 1. Disordered industry development with strong speculative tendencies. 2. Difficulties in protecting the legal rights of investors. 3. Vulnerability to illegal criminal activities. These issues have now been alleviated to varying degrees. We can predict that if this round of bear market does not experience the huge explosions like the last round, then by 2026, the Chinese government may begin to gradually accept cryptocurrencies.