Compliance Strategy for Chinese Mainland Users to Invest in Bitcoin

Author/Zhang Wuji wepoets

In recent years, Bitcoin (BTC), as the world's most representative cryptocurrency, has attracted the attention of countless investors. However, in mainland China, virtual currency transactions are strictly regulated, and relevant policies clearly prohibit the trading and speculation of virtual currencies. For mainland Chinese users who want to understand how to participate in Bitcoin investment under the compliance framework, this article will conduct a detailed analysis from the aspects of legal background, possible operation paths, risk warnings, and alternative investment methods to help you make wise decisions under the premise of legality and compliance.

1. Understand the virtual currency regulatory policy in mainland China

Before discussing how to invest in Bitcoin, it is crucial to understand the legal and policy framework in mainland China.

The following are key regulatory policies and background information:

1. Legal status of virtual currency According to the "Notice on Preventing the Risks of Token Issuance and Financing" (hereinafter referred to as the "94 Notice") issued by the People's Bank of China and seven other ministries and commissions on September 4, 2017, virtual currency (such as Bitcoin) does not have the status of legal tender, is not legal and compulsory, and cannot be circulated and used as currency in the market. Bitcoin is defined as a "specific virtual commodity" rather than a currency or financial investment product.

2. Comprehensive ban on virtual currency transactions On September 24, 2021, the People's Bank of China and other departments issued the "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation" (Yinfa [2021] No. 237), which clearly prohibits the following behaviors:

· Virtual currency-related trading and settlement services;

· Virtual currency exchanges (including overseas exchanges providing services to mainland Chinese residents through the Internet);

· Virtual currency issuance, financing and speculation activities. The notice also pointed out that participating in virtual currency transactions may involve illegal financial activities, and serious offenders may be held criminally liable.

3. Legality of holding Bitcoin According to an article published by the Shanghai High People's Court on November 18, 2024, it is not illegal for an individual to simply hold virtual currency (such as Bitcoin). However, any form of trading, speculation, or engaging in illegal activities (such as money laundering and fraud) through virtual currency is illegal.

4. Ban on virtual currency "mining" On September 24, 2021, the National Development and Reform Commission and other departments issued the "Notice on Rectifying Virtual Currency "Mining" Activities", which comprehensively banned virtual currency "mining" activities and emphasized its high energy consumption and low contribution to the economy.

In short, in mainland China, virtual currency transactions, speculation, settlement services and related financial activities are strictly prohibited. Although holding Bitcoin itself is not illegal, any behavior involving trading, exchange or financing may touch the legal red line. Therefore, ordinary users in the mainland can hardly directly participate in Bitcoin "deposit" or trading through legal channels.

II. Feasibility Analysis of Compliance Participation in Bitcoin Investment

Given the regulatory environment in mainland China, ordinary users have almost no compliant ways to invest in Bitcoin directly through RMB "deposit". The following are some ways that may be mentioned but are actually not feasible, as well as the related legal risks:

1. Buy Bitcoin through domestic exchanges Mainland China has completely banned virtual currency exchanges (such as Huobi, Binance, etc. operating in China). At present, all exchanges registered in the mainland have been closed or moved overseas. Therefore, any platform that claims to provide RMB to directly purchase Bitcoin may be suspected of violating the law, and users who participate in such transactions are at risk of financial security and legal risks.

2. Buy through over-the-counter (OTC) Over-the-counter (OTC) usually refers to the purchase of Bitcoin through person-to-person, but in mainland China, OTC transactions are also regarded as illegal financial activities. Regulatory authorities explicitly prohibit any form of virtual currency transactions, including peer-to-peer transactions through payment tools such as WeChat and Alipay.

3. Purchase through overseas exchanges Some users may consider using RMB or other fiat currencies to purchase Bitcoin through overseas cryptocurrency exchanges (such as Binance, Coinbase, Kraken, etc.). However, according to the 2021 regulatory notice, overseas exchanges providing services to mainland Chinese residents through the Internet are also considered illegal activities. Users who use VPN software to access overseas exchanges, convert RMB into stablecoins (such as USDT) and then purchase Bitcoin may be deemed illegal by regulators.

4. Purchase Bitcoin through cross-border remittances Some users may try to convert RMB into foreign currencies (such as US dollars) and then purchase Bitcoin overseas. However, China's foreign exchange control policy strictly restricts the use of personal foreign exchange, and any cross-border remittances used for virtual currency transactions may be deemed illegal capital flows, involving money laundering or other criminal liability.

Therefore, under the current policy, mainland Chinese users have almost no compliant ways to directly "deposit" RMB to invest in Bitcoin. Any attempt to circumvent regulation (such as using VPN to access overseas exchanges, exchanging through underground channels, etc.) carries extremely high legal and financial risks.

III. Possible alternatives: Indirect participation in the digital asset market

Although direct investment in Bitcoin is not compliant in the mainland, users interested in blockchain technology and digital assets can consider the following alternatives to participate in related fields within a legal and compliant framework:

1. Invest in blockchain-related stocks or funds Users can invest in listed companies related to blockchain technology through the A-share, Hong Kong-share or US-share markets. For example:

·A-share market: Some technology companies (such as Venusstar and Hang Seng Electronics) are involved in blockchain technology research and development.

·US stock market: Invest in companies related to cryptocurrencies, such as MicroStrategy (holding a large amount of Bitcoin), Coinbase (cryptocurrency exchange), or NVIDIA (providing blockchain mining-related hardware).

·Hong Kong stock market: Some blockchain technology companies or cryptocurrency-related companies are listed in Hong Kong. Investing in these stocks or ETFs through securities accounts can indirectly participate in the growth of the blockchain industry within compliant channels.

2. Learn blockchain technology As a cutting-edge technology, blockchain is widely used in finance, supply chain, data management and other fields. The Chinese government supports the development of blockchain technology (different from virtual currency). Users can learn more about this field by learning blockchain development, participating in technical communities or investing in related training courses.

3. Pay attention to the central bank digital currency (DCEP) The People's Bank of China is promoting the digital renminbi (DCEP), a state-backed legal digital currency that is different from decentralized Bitcoin. Users can experience the actual application scenarios of digital currency by participating in the digital renminbi pilot project.

4. Overseas compliant investment (caution required) If the user has a legal overseas identity or residency, he can invest in Bitcoin through compliant exchanges in jurisdictions that comply with local laws (such as Hong Kong, Singapore, and the United States). But be careful: make sure the source of funds is legal and comply with China's foreign exchange control policies. Choose a regulated exchange (such as Coinbase and Kraken in the United States, or a licensed platform in Hong Kong). Consult a professional lawyer or financial advisor to avoid violating laws in mainland China or overseas.

IV. Risk Warning for Bitcoin Investment

Even when compliance is in doubt, some users may still try to participate in Bitcoin investment through informal channels. The following are risks that require special attention:

1. Legal risks Participation in virtual currency transactions may be deemed as illegal financial activities, and serious cases may face administrative penalties or even criminal liability. Regulatory authorities are continuously strengthening their monitoring of virtual currency transactions, including tracking bank accounts, payment platforms and cross-border funds.

2. Fund security risks Non-compliant channels (such as underground OTC transactions, unregulated overseas platforms) may involve risks of fraud, loss of funds or account freezing. In recent years, virtual currency-related fraud cases have emerged in an endless stream, and users need to be wary of "borderline" fraud traps.

3. Market volatility risks Bitcoin prices fluctuate violently, and investment returns are uncertain. Bitcoin prices rose sharply in early 2024, but its high volatility makes it unsuitable for risk-averse investors.

4. Technical risks Bitcoin storage requires the use of a digital wallet, and the loss or theft of private keys may lead to permanent loss of assets. Hacker attacks and phishing are also common risks.

V. Suggestions and summary of compliant investment

For users in mainland China, under the current regulatory environment, it is almost impossible to achieve compliant operations by directly investing in Bitcoin through RMB "deposit". Any attempt to circumvent regulation may bring serious legal and financial risks. Therefore, users are advised to:

1. Strictly abide by laws and regulations Avoid participating in any form of virtual currency transactions, speculation or financing activities, and ensure that the source and use of funds are legal.

2. Choose compliant investment channels Invest in blockchain-related stocks or funds through formal securities markets, and indirectly participate in the development of the digital asset field.

3. Strengthen knowledge reserves Learn relevant knowledge about blockchain technology and digital currency, pay attention to policy trends, and prepare for possible investment opportunities in the future.

4. Consult professionals When considering cross-border investment or other complex operations, be sure to consult a professional lawyer or financial advisor to ensure that the operation is legal and compliant.

In short, in mainland China, the legal path for investing in Bitcoin is extremely limited, and any direct "deposit" purchase may touch the legal red line. It is recommended that users turn their attention to the legal financial market and blockchain technology field, realize wealth appreciation through compliant means, and avoid unnecessary risks. Disclaimer This article is only for information sharing and does not constitute investment advice. Investment is risky and decisions should be made with caution. Before participating in any investment activities, please understand the relevant laws and regulations in detail and consult professionals. (Welcome to leave a message in the background to consult about the service of compliant investment in Bitcoin.)

Reference source

·Notice on further preventing and handling the risks of speculation in virtual currency transactions (Yinfa [2021] No. 237)

·Announcement on preventing the risks of token issuance and financing (September 4, 2017)

·Analysis of China's cryptocurrency legal framework (Jincheng Tongda Law Firm, December 30, 2024)

·Analysis of the legality and risks of Bitcoin transactions in China (Dalian.com, August 23, 2024)

·Behind the crazy rise of Bitcoin: Domestic investors should beware of the "secret passage" speculation trap (Securities Times, March 14, 2024)