The Asian giant has intensified measures against digital currencies, considering them illegal since September 2021. Meanwhile, cryptocurrency miners continue their activity flouting China’s bans.
China’s Supreme People’s Court has ruled that cryptocurrency fundraising is now a criminal offense in the Asian giant. The sanction, details the statement issued by the court, will vary depending on the value of the amount collected. This measure comes five months after the Chinese central bank declared illegal all activities related to cryptocurrencies, from transactions between companies and individuals to the advertising of these, as well as the issuance and commercialization of tokens and the activity of mining farms.
The tightening of the current legislation, which is one of the strictest in the world along with Turkey, has emerged for one reason: to control the flow of capital and financial transactions that take place in the Chinese economy. Cryptocurrencies have burst into the sector as a volatile financial instrument, without any type of control by the institutions. However, in the statement, the court argues the new measures as a movement in favor of transparency, the protection of citizens, and the fight against money laundering.
Five months ago, the Chinese central bank already declared illegal any activity related to virtual currencies, both transactions between companies and individuals, even affecting their advertising. After that legislative change, online and face-to-face activities related to this sector stopped in China. There was a prohibition to trade tokens, as well as to mine farms, which forced miners based in China to move abroad. That massive migration was one of the biggest hash rate drops in the Bitcoin network in several years since a large part of the mining was ‘centralized’ in this country. The total control has been progressive since if we go back to 2013, the government already vetoed that banks could trade with Bitcoin.
It seems that one of the first steps that the Chinese government is taking is to eliminate any alternative for its citizens despite cutting the economic activity of a growing sector such as the crypto sector of its own nation.
China did not see favorably that cryptocurrencies escaped the control of institutions, more so being such a volatile financial instrument. However, the court excuses the new measures, arguing that this is the only way to achieve a higher level of transparency, in addition to a more effective fight against money laundering in accordance with the regulations. The number of sanctions that the Chinese government will impose on violators of the regulations has stood out for their severity, ranging from fines to several years in prison.
Up to 10 Years in Prison for Using Cryptocurrencies
As detailed in the statement, the penalties will vary depending on the value of the amount collected. When the fundraising exceeds 100,000 yuan (14,000 euros), it is a “large amount.” If it exceeds 50 million yuan (7 million euros) or involves 5,000 people, it is an “extremely serious” offence, which could end with 10 years in prison. The fines could reach 79,000 dollars (70,500 euros).
The new legal interpretation, which came into force on March 1, punishes “cryptocurrency transactions”, with the aim, according to the statement, of “fighting crimes of illegal fundraising and maintaining national financial security and stability.”
While the Chinese government hides behind transparency as the basis for adopting the new measures, it continues to invest in its own digital currency: the digital yuan (e-CNY).
In this way, the Chinese government plans to create a centralized model that grants absolute control of the cryptocurrency market in China. This digital yuan first appeared at the Winter Olympics in Beijing and has been in the testing phase for a couple of years. Although the use of this currency will become more popular over time, the truth is that it is not having matching the success of its competitors. It has more limited access compared to other cryptocurrencies, its non-volatile value, and due to the indeterminate level of control that the Chinese government plans to maintain over the asset in the long term. Will the digital yuan ever replace the fiat yuan? That remains to be seen.
Since the arrival and internationalization of cryptocurrencies, such as Bitcoin or Ethereum, many countries have undertaken legislative initiatives to control the use of this type of currency. At the European level, the European Union (EU) is seeking to strengthen the surveillance of these assets with the creation of new money-laundering controls to supervise companies in the crypto industry. However, China and Turkey are the countries that have the toughest legislation regarding activities related to cryptocurrencies.
By Audy Castaneda
