China Tightens Crypto Oversight with New Foreign Exchange Rules: Report

China has introduced stricter regulations to curb cryptocurrency-related activities, with its foreign exchange regulator requiring banks to monitor and flag risky trades involving digital assets.

The State Administration of Foreign Exchange (SAFE) announced last week that the new rules aim to target underground banking, cross-border gambling, and illegal financial activities involving cryptocurrencies, according to a report from the South China Morning Post.

Chinese Banks Need to Identify High-Risk Transactions

Under the updated guidelines, banks across mainland China need to identify high-risk transactions by examining the identities of individuals and institutions, sources of funds, and trading frequency.

They must also implement robust risk-control measures and limit services provided to entities suspected of engaging in such activities.

These measures reflect Beijing’s ongoing crackdown on cryptocurrencies, which the government views as a potential threat to financial stability.

The new rules are expected to bolster legal grounds for penalizing crypto trading, according to Liu Zhengyao, a lawyer with ZhiHeng law firm in Shanghai.

In a recent WeChat post, Liu told the SCMP that the regulations make it increasingly difficult for individuals to circumvent China’s foreign exchange rules using cryptocurrencies.

The practice of converting yuan into cryptocurrencies to facilitate cross-border transactions is now classified as a high-risk activity.

Transactions exceeding legally permitted thresholds will face greater scrutiny under the new framework.

China’s anti-crypto stance is not new. In 2017, the government banned initial coin offerings (ICOs) and ordered the closure of crypto exchanges.

By 2021, it extended the crackdown to prohibit Bitcoin mining and declare all crypto-related businesses illegal.

Despite the global momentum in cryptocurrency adoption, China has remained resolute in its regulatory approach.

Recent calls by some experts to relax these stringent policies have gained little traction.

My mental model is that if you don’t win tech you don’t win.

Because tech isn’t just electric cars and rocket ships, life extension and artificial intelligence.

Tech is the money (crypto), the media (social), and especially the military (drones).

China understands this. pic.twitter.com/za04GU5o2k

— Balaji (@balajis) December 26, 2024

Even as Bitcoin prices rallied on the back of President-elect Donald Trump’s pro-crypto policies in the United States, Beijing has shown no intention of softening its stance.

Legal Risks for Crypto Traders Intensify

Legal risks for cryptocurrency traders in China have also intensified. In August, the Supreme People’s Court ruled that using cryptocurrencies to transfer or convert criminal proceeds constitutes a violation of the country’s criminal law.

Additionally, authorities have increased oversight of forex trading involving stablecoins like Tether, further limiting avenues for crypto transactions.

Interestingly, China ranks as the second-largest holder of Bitcoin globally, with 194,000 BTC valued at approximately $18 billion.

These holdings, however, are not a result of government purchases but stem from asset seizures linked to illegal activities.

As reported, Huabao Overseas Technology C, a tech company offering Chinese investors indirect exposure to Bitcoin, has reportedly launched an advertisement promoting Bitcoin ETFs.

Earlier this month, users of Alipay in mainland China discovered promotions on their homepages endorsing spot Bitcoin ETFs, which referred users to Huabao Overseas Technology.

The firm, through a series of fund offerings labeled QDII-FOF-LOF, provides a gateway to indirectly investing in shares of Coinbase and the ARK 21Shares Bitcoin ETF.