The background of China’s virtual currency control

China’s attitude toward virtual currencies has undergone multiple changes. Initially, China was open to this emerging technology, and many early virtual currency exchanges and mining activities were concentrated in China. China once became the world's largest Bitcoin trading market and mining center , controlling most of the world's Bitcoin computing power, and once accounted for about two-thirds of the total Bitcoin computing power. .

However, with the expansion of the virtual currency market and the accompanying risks of illegal financing, fraud and capital outflows, the Chinese government began to tighten supervision of virtual currencies. In 2013, the People's Bank of China and five other ministries and commissions jointly issued the "Notice on Preventing Bitcoin Risks" , which clarified the legal status of Bitcoin for the first time and prohibited financial institutions and payment institutions from participating in Bitcoin-related businesses. Since then, regulatory measures have been gradually upgraded, and by 2017, China completely banned virtual currency exchanges and ICOs (Initial Coin Offerings).

China’s current virtual currency policy restrictions

Trading and investment restrictions

• Ban on the operation of virtual currency exchanges: Since 2017, China has completely banned the operation of virtual currency exchanges within the country. Seven ministries and commissions including the People's Bank of China jointly issued the "Announcement on Preventing Token Issuance and Financing Risks", which clearly prohibits all forms of token issuance and financing (ICO) and requires existing virtual currency exchanges to cease operations and liquidate. Since then, the Chinese government has repeatedly emphasized the strict supervision of virtual currency trading activities and strengthened the monitoring of relevant Internet platforms to prevent illegal trading activities.

Regulation of Mining Activities

• Closure of large-scale mining facilities : China was once the world’s largest Bitcoin mining center, but starting in 2021, the government began to strictly control mining activities. The National Development and Reform Commission (NDRC) issued the "Notice on Regulating Virtual Currency "Mining" Activities" , which clearly classified virtual currency mining as a phased-out industry and required regional governments to close related mining facilities. This move aims to reduce energy consumption and promote green development.

Laws and regulations related to virtual currency

The Chinese government maintains a zero-tolerance attitude towards criminal activities involving virtual currencies. According to the Criminal Law and relevant judicial interpretations, the use of virtual currencies to commit fraud, money laundering, illegal fund-raising and other criminal activities will be severely punished. The public security departments and judicial organs have intensified their efforts to crack down on such crimes, arresting and prosecuting those involved through multiple special operations, and maintaining the stability and security of the financial market.

Hong Kong’s impact on China through virtual currency ETFs

Development of Hong Kong Market

Background of the launch of virtual currency ETF : As an international financial center, Hong Kong has always been at the forefront of financial innovation and market opening. In 2023, the Hong Kong Securities and Futures Commission (SFC) approved the first virtual currency exchange-traded fund (ETF), which marked the further legalization and standardization of virtual currencies in the Hong Kong financial market. The move is part of Hong Kong's drive to promote fintech development and attract international investment.

Mainland China's reaction

Official attitude and statement : The Chinese mainland government has shown a cautious attitude towards the launch of virtual currency ETFs in Hong Kong. Official media and financial regulators emphasized that the mainland’s virtual currency policy has not changed, and strict controls on virtual currency transactions and mining activities are still maintained. The government reiterated its emphasis on financial market stability and risk prevention and control, and warned investors to be cautious about virtual currency-related investments.

Although the mainland government still maintains strict control over virtual currencies, Hong Kong's developments may stimulate gradual adjustments to mainland policies. Some experts believe that in the future, the mainland may relax controls on virtual currencies under certain conditions, such as allowing regulated financial institutions to provide virtual currency-related services, or trial virtual currency transactions in special economic zones such as free trade zones.

Possibility of adjustments to the regulatory framework: With the development of the international financial market and the advancement of virtual currency technology, mainland China may gradually improve its regulatory framework. This includes strengthening the supervision of virtual currency transactions, promoting technological innovation and risk control, and integrating with international standards to enhance market transparency and security. These adjustments may be gradually reflected in future policies.