Journalist: Carol Lee, April Cho | Translator: Kevin Yang
In a “2018 China Financial Stability Report” published on Nov 2nd, the People’s Bank of China (PBoC) reinstated its ban on cryptocurrency trading. For the first time, PBoC officially analyzed risks from cryptocurrency trading and potential risk mitigation measures. In the future, cryptocurrency regulations are likely to become even more strict. Apart from tighter regulations, PBoC also called for more international collaboration on regulations on cryptocurrency trading.
PBoC Finds that Cryptocurrency Trading Developing in a “Chaotic” Fashion
The case studies in the PBoC Report estimated that as of July 18th, 2017, 65 ICOs had been completed in China. Participating investors have been estimated to be around 105,000 and participating funds are ballparked to hit around 2.6 million RMB. Chinese cryptocurrency activity during the period accounted for over 20% of the global markets in the same period.
Nevertheless, the PBoC believed that this expansion has also resulted in an uptick in d white-collar crimes fraudulent ICOs and quotations manipulation by bankers also worth people’s attention.
PBoC Continues to Tighten Regulatory Mechanisms on Cryptocurrency Trading
Current regulatory measures are comprised of two key points:
Mandated warnings about the risks of investing in Bitcoin: Financial institutions are not allowed to run Bitcoin-related businesses: PBoC published the “Announcement on Preventing Risks in Bitcoin Transactions” in Dec 2013, explicitly prohibiting financial institutions and payment services from running Bitcoin-related businesses.
Regulations on the ICO financing and trading platforms: The PBoC has a required ban onICO and trading platforms. In Sep 2017, PBoC published the “Announcement on risks prevention in ICO”, explicitly declaring that an ICO is essentially an unauthorized and illegal public financing measure and suspended all the domestic trading platforms.
According to the PBoC, some illegal overseas businesses are still reliant on cryptocurrency trading platforms The Report suggested that Chinese authorities should retain strict regulation and heavily combat newly-emerging illegal activities. In addition, the Report also suggested that Chinese authorities should institute proper investors’ protections and inform them of key information.
Read between the lines: stricter crypto regulations but willingness to be the global leader in making the rules
On the surface, this report is generally aligned with the stance that most Chinese government reports take on cryptocurrency exchanges. However, the key to reading Chinese government reports is to read between the lines. The report indicates that cryptocurrency has become an integral part of the stability of Chinese financial industry. However the lack of proper regulation on the industry has resulted in speculative financial activities and the potential for serious global crimes.
According to the Report, to tackle with these risks, the Chinese authorities has already acknowledged the importance of the cryptocurrency trade. However, one of their priorities is to begin to remediate associated risks by enacting domestic regulations. These include heavier vetting of internet financing, primarily by implementing proper regulations and improvements in the ICO (Initial Coin Offering) and cryptocurrency exchanges processes. After that, China will then develop research and monitoring mechanisms that strengthen investor protection and education measures. Finally, China suggests a willingness to take the lead on the global stage to facilitate international collaboration on the issue of cryptocurrency trading.
