The Evolution of Cryptocurrency Legislation in China Prior to 2024

As of 2023, China’s stance on cryptocurrency has been characterized by a complex and somewhat contradictory approach. The country, known for its stringent regulatory environment, has taken significant steps to both recognize and restrict the use of cryptocurrencies.

Ban on Crypto Transactions and Mining

China intensified its crackdown on cryptocurrencies with a comprehensive ban on all crypto transactions and crypto mining. This blanket prohibition was enforced by the country’s most powerful regulators, including the central bank, and banking, securities, and foreign exchange regulators. The aim was to root out “illegal” cryptocurrency activities and mitigate financial risks associated with them. This move followed China’s history of implementing increasingly strict rules on virtual currencies​​​​.

Non-Recognition as Legal Tender

Cryptocurrencies are not recognized as legal tender in China, and the banking system does not accept or provide services related to them. Initially, in 2013, the government defined bitcoin as a virtual commodity, allowing individuals to freely participate in its online trade. However, later developments saw financial regulators, including the People’s Bank of China (PBOC), prohibiting banks and payment companies from providing bitcoin-related services. In September 2017, China banned initial coin offerings (ICOs) and prevented cryptocurrency trading platforms from converting legal tender into cryptocurrencies and vice versa​​​​.

Recent Contradictory Legal Rulings

In a surprising turn, Chinese courts ruled that cryptocurrencies are protected as legal property under Chinese law, despite the official ban on crypto trading and mining imposed in 2021. This legal recognition of digital assets in China, where there is no legal way of obtaining them, adds a layer of complexity to the regulatory landscape. The People’s Court report emphasized the economic value of cryptocurrencies, suggesting that they should be considered legal property protected under Chinese law​​​​.

Harsh Punishments and Regulatory Enforcement

Despite this legal recognition, the Chinese government continued to exhibit an uncompromising stance towards crypto, with harsh punishments for violations. For example, a former Communist Party official was sentenced to life in prison for taking bribes linked to supporting crypto mining operations. This highlights the severity of the regulatory enforcement in China and the government’s determination to control the crypto market​​​​.

Hong Kong’s Divergent Approach

Interestingly, Hong Kong, a special administrative region of China, has diverged from Beijing’s strict stance by approving licenses for crypto exchanges. This development has led to speculation that Hong Kong might serve as a pilot zone for potential crypto policies in mainland China, indicating a possible future shift in China’s overall approach to cryptocurrency regulation​​.

In conclusion, China’s legislative landscape for cryptocurrencies prior to 2024 was marked by a stringent ban on crypto transactions and mining, non-recognition of cryptocurrencies as legal tender, and a complex judicial stance that simultaneously recognized the legal status of digital assets while enforcing severe penalties for crypto-related activities. This intricate regulatory framework reflects the government’s cautious yet evolving attitude towards the rapidly growing cryptocurrency market.