Legal Crypto In China

Overview of Cryptocurrency Regulations in China

Legality of Cryptocurrency

The likes of Bitcoin and Ethereum are not legal tenders in China nor do they have the status of PBOC as its currency. People can own as many coins as they want to, but if the you-know-what hits the fan, then no one is liable for any personal investments in cryptocurrency. A 2021 circular from the PBOC and nine other agencies said that all cryptocurrency transactions were illegal, including trading for fiat, trading among cryptocurrencies and using them as payment. ICOs have been prohibited since 2017, as they were deemed to be an unauthorized way of raising funds, and so also the issuance of the tokens. A ban on cryptocurrency mining in late 2021, over energy use and financial risks, forced miners to move their operations overseas. Banks are not allowed to provide any services related to cryptocurrency, which includes storage, exchange, or payments. The focus of enforcement appears to be primarily on commercial and institutional activities, although individuals involved in prohibited transactions might be subject to fines or criminal sanctions, especially for larger-scale efforts.

Legislation Regulating the Cryptos Market

The following is an overview of the main regulations in China with regard to cryptocurrency.

Regulation	Year	Description
Notice on Bitcoin	2013	Classified Bitcoin as a virtual commodity, not currency; banned banks from handling it.
ICO Ban	2017	Prohibited ICOs as unauthorized fundraising; required refunds for existing ICOs.
Circular on Virtual Currency Activities	2021	Declared all cryptocurrency transactions and related businesses illegal.
Draft Law on Virtual Currencies	2020	Proposed banning issuance or circulation of virtual currencies as legal tender.
AML Regulations	Ongoing	Subjects cryptocurrency activities to anti-money laundering oversight.

These steps are intended to reduce speculation, curb capital flight and strengthen the state-controlled financial system. The state closely spies on underground transactions and foreign exchanges that cater to Chinese users, harshly limiting cross-border transactions with capital controls.

Cryptocurrency Exchanges

The 2021 ban put an end to the legal onshore cryptocurrency exchanges in mainland China. Top exchanges such as Binance, Huobi and OKEx, all originally launched by Chinese entrepreneurs, have moved to places like Singapore, Malta or even the Seychelles. Chinese users can visit these platforms with VPNs, but it is illegal and extremely dangerous. Binance, a worldwide exchange once rooted in China, presents an array of cryptocurrencies and is still popular despite the ban. Chinese the once dominant exchange Huobi has gone offshore accessible using VPN’s. OKEx (OKX) has spot and futures trading, though it was moved after the 2021 ban and is limited in availability within China. Direct trades are illegal, but P2P (peer-to-peer) platform such as LocalBitcoins also allows it. Exchange websites are banned and banks barred from processing related transactions, leaving such people dependent on informal or offshore alternatives.

Methods of Exchange

In China proper, there is no legitimate way to buy cryptocurrency with fiat, because the ban is total. Common (but illegal) methods are peer to peer (P2P) trades (arranged through social media, like WeChat, or P2P platforms) where users exchange with other individuals in a settlement layer (e.g., bank transfer, targeted mobile app such as WeChat Pay, or even cash). OTC trading, which used to be available on exchanges including Huobi, can now only be accessed on overseas platforms. For example, cross-border transactions will mean sending money to overseas accounts or trading with stablecoins like USDT in the presence of capital controls. Decentralized platform or wallet facilitated crypto-to-crypto swaps that don’t involve fiat such as CoinSwitch is billed dead as well. These measures are contrary to the 2021 circular and may result in legal and financial liabilities for the co-participants such as account closure or criminal action for major trading transactions.

Decentralized Finance (DeFi) Space Market

Using decentralized protocols to lend, borrow and trade — a practice known as DeFi — is illegal as a type of virtual currency-related activity, according to China’s central bank. DeFi is considered a financial stability risk by the government as it is non-centrally controlled, and it was seeking to ban it via a 2021 circular. It’s possible for VPNs and decentralized wallets (MetaMask etc) to access Uni, and Aave—but it’s both against the rules and enforceable. The novelty in DeFi is pinned to state-associated blockchains like the Blockchain-based Services Network (BSN), not public blockchains. China is calling for restricted permissioned blockchains, not a DeFi, decentralized situation. Because of legal barriers and access limitations, participation remains restricted and covert.

Non-Fungible Tokens (NFT)s Market

NFTs do business in a controlled niche that is separate from cryptocurrencies in China. They are considered digital collectibles, not financial tools, and are allowed to be purchased with fiat currency and real-name registration on state-approved platforms. Called “digital collectibles,” Huanhe from Tencent and AntChain from Alibaba are issued on private blockchains and avoid cryptocurrencies. [Buying/selling NFTs] sales buying/selling NFTs with cryptocurrencies exchanged on public blockchain (e.g., Ethereum) is defined as illegal, and speculative trading is discouraged. The market emphasizes art, gaming and cultural collectibles, but is smaller than its SECRET global counterparts because of regulatory constraints. Restrictions including noninteroperability with foreign NFT ecologies and cryptocurrencies ban hinder the expansion.

Useful Information

• The PBOC touts digital yuan as the only lawful digital currency, relegating decentralized cryptocurrencies to the sidelines.
• Running VPNs to connect to prohibited exchanges or DeFi platforms isa a typical act of illegality, either directly being fined for the illegal activity.
• China also promotes the adoption of blockchain technology for the enterprise (e.g., supply chain and finance) through the BSN, but only in restricted settings.
• Platforms describe “digital collectibles” instead of “NFTs” because the former term is in line with regulations and doesn’t carry the cryptocurrency connotations.
• Regulators are relying more on blockchain analytics and the tracking of bank transactions to find the proceeds of illegal cryptocurrency trades.
• Tight regulations of transfer across borders ($50,000 annual cap for individuals) make offshore trading is more difficult.

Summary

China bans trade, mining & DeFI callscript China coinlaws are oriented on financial control and the digital yuan – prohibiting trade, mining & DeFi, while allowing individuals to own coins, exposed to public access. A separate offshore exchange remains, and risky modes like P2P trading continue to exist, while the NFT market is regulated as a digital collectible. The table and list of useful information form a handy guide to the complexity of this regulatory environment.