China’s latest move in the ongoing cryptocurrency regulatory saga has been met with mixed reactions from industry experts.
On December 31, the South China Morning Post reported that mainland China’s new foreign exchange rules will make it even more challenging for residents to buy digital assets. The regulations require banks to monitor and report on risky forex trading activities involving crypto assets, including cross-border gambling, underground banking, and illegal financial activities.
New Forex Rules: What Do They Entail?
According to the new regulations, banks must track the activities of individuals and institutions involved in forex trading, including their sources of funds and the frequency of their trades. This move is seen as an effort by Chinese regulators to crack down on illicit financial activities, including those related to cryptocurrencies.
Risky Trades: What Does it Mean?
Under the new rules, banks are required to monitor and report on any suspicious activity that may indicate a risk of cross-border gambling or underground banking. This includes trades involving crypto assets that involve multiple countries or jurisdictions. The regulators aim to prevent individuals from circumventing China’s anti-crypto stance by using cryptocurrencies as an intermediary for illicit activities.
China’s Regulatory Stance: Will it Continue?
Liu Zhengyao, a lawyer at ZhiHeng law firm, believes that the new regulations will provide another basis for punishing crypto trading in China. He warned that using yuan to buy crypto before exchanging it for foreign fiat currencies may be considered cross-border activity under the new rules.
Zhengyao’s comments suggest that China’s regulatory stance on cryptocurrencies is unlikely to relax anytime soon. In fact, it may continue to tighten as regulators seek to prevent illicit activities and reduce the country’s reliance on energy-intensive cryptocurrency mining.
China’s Banned Crypto Transactions: What Happens Next?
In 2019, China banned crypto transactions outright, citing concerns over energy consumption and greenhouse gas emissions. Financial institutions were also prohibited from dealing with digital assets and crypto mining.
Despite this ban, China has been holding onto a significant amount of Bitcoin (BTC) since then. According to Bitbo’s Bitcoin Treasuries tracker, China ranks second in the number of BTC held per country, with 194,000 BTC worth around $18 billion at the time of writing.
But how did China acquire this vast stash of Bitcoin? It turns out that most of it was seized as part of asset forfeiture linked to illicit activities. This means that China’s anti-crypto stance has not prevented the country from accumulating a substantial amount of Bitcoin over the years.
China’s Bitcoin Holdings: A Contradiction?
On one hand, China’s government has been vocal about its disdain for cryptocurrencies and their associated risks. On the other hand, the country has been quietly accumulating a significant stash of Bitcoin through seizures linked to illicit activities.
This apparent contradiction has sparked debate among industry experts. Some argue that China may be holding onto Bitcoin as a strategic reserve or to exert influence over the global cryptocurrency market.
Former Binance CEO: China May Adopt a Bitcoin Reserve Strategy
In an interview, former Binance CEO Changpeng ‘CZ’ Zhao predicted that China will eventually adopt a Bitcoin reserve strategy. He argued that the country has been quietly accumulating Bitcoin and may move quickly on policies if it chooses to do so.
Zhao’s comments highlight the complexities of China’s regulatory stance towards cryptocurrencies. While the government has banned crypto transactions, it appears to be taking a more nuanced approach by holding onto a significant stash of Bitcoin.
Conclusion
China’s latest move in regulating cryptocurrencies has sent shockwaves through the industry. The new forex rules are designed to prevent illicit activities and reduce the risks associated with cross-border trading. However, they also highlight the complexities of China’s regulatory stance towards cryptocurrencies.
As the global cryptocurrency market continues to evolve, it remains to be seen how China will navigate its contradictory stance on Bitcoin. Will the country continue to accumulate more Bitcoin through seizures linked to illicit activities? Or will it eventually adopt a more transparent approach by allowing regulated crypto trading?
One thing is certain: China’s regulatory policies will have far-reaching implications for the global cryptocurrency market.
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