Deng Jianpeng: Global Regulation Trends of Encryption Assets and China's Response

Author: Deng Jianpeng, Source: China Economic Times

In recent years, cryptocurrency has rapidly evolved from a marginal sector to an important component of the global financial system, with its cross-border liquidity and anonymity giving rise to new types of crimes such as money laundering and illegal foreign exchange trading.

China has established a "prohibition-based regulatory" framework through documents such as the "Notice on Preventing the Risks of Bitcoin" (2013), the "Announcement on Preventing the Risks of Token Issuance Financing" (2017), and the "Notice on Further Preventing and Dealing with the Risks of Speculation in Virtual Currency Transactions" (2021). This policy has effectively curbed domestic speculation in cryptocurrency trends, but as the market has evolved, certain limitations have begun to emerge.

On the one hand, due to the influence of the above-mentioned normative documents, the judicial authorities have vaguely identified and vacillated the legal attributes of virtual currencies, resulting in the lack of protection of the civil rights and interests of the legal holders of encrypted digital currencies, and at the same time, a large number of "different judgments in the same case" have appeared in the judgments of different civil and criminal cases. On the other hand, the global regulatory paradigm is diverging at an accelerating pace. The European Union's Cryptoasset Market Regulation Act, which will come into effect in 2024, implements hierarchical and classified supervision of cryptoasset risks; In 2025, the U.S. government will further strengthen the hegemony of the U.S. dollar by recognizing stablecoins pegged to the U.S. dollar through the Strategic Bitcoin Reserve. In 2024, Hong Kong will begin to implement the licensing of mainstream cryptoasset exchanges and the practice of Bitcoin and Ether ETFs. Under this regulatory trend, mainstream crypto assets have gradually become an important carrier of wealth in the new era. In this context, how to build a regulatory framework that takes into account financial security, innovation and inclusiveness should be a strategic issue that China needs to consider urgently.

New Trends in Global Cryptocurrency Regulation

In the new trend of global cryptocurrency asset regulation, the regulatory practices of the following countries and regions deserve high attention.

First, the EU's "Regulation on Markets in Crypto-assets" features risk-based tiered regulation. This legislation is the world's first comprehensive regulatory framework for crypto assets, classifying them into cryptocurrencies, asset-referenced tokens (like stablecoins), and electronic money tokens, while establishing differentiated regulatory rules. Its core characteristics include: first, issuer entry licensing, requiring stablecoin issuers to hold sufficient reserve assets and fulfill strict disclosure obligations, with stablecoins needing to meet additional liquidity management requirements. Second, compliance thresholds for service providers, where cryptocurrency trading platforms must meet minimum capital requirements and establish anti-money laundering mechanisms. This legislation does not cover decentralized finance (DeFi) and non-fungible tokens (NFTs) on the blockchain, but its "risk-based tiering" approach offers valuable insights for the global landscape.

Second, the U.S. strategic bitcoin reserves and the U.S. dollar cycle have been strengthened. The Trump administration signed an executive order in early 2025 to establish a "strategic bitcoin reserve" to include the confiscated approximately 200,000 bitcoins into the national reserve, and to strengthen the dollar's pricing position in global crypto asset trading by supporting US dollar stablecoins (such as USDT, USDC) to form a "dollar-stablecoin-crypto market" cycle. The U.S. Securities and Exchange Commission approved Bitcoin spot and Ether spot ETFs in 2024, attracting capital inflows from a large number of traditional investment institutions and promoting the mainstreaming of crypto assets. This strategy is conducive to hedging the risk of dollar depreciation, and at the same time integrating the crypto market into the US financial system, through which the crypto market is bound to the US dollar system, strengthening the US financial hegemony, and its strategic intention is worthy of China's vigilance.

Once again, the licensing and innovative practices of cryptocurrency asset trading in Hong Kong. Since 2024, the Hong Kong region has shifted from its previous strict regulatory trend towards cryptocurrencies, implementing a licensing system for mainstream cryptocurrencies (Bitcoin and Ethereum) trading. Security tokens are governed by the Securities and Futures Ordinance, while non-security tokens are subject to anti-money laundering regulations, and it has successfully explored the listing and trading of Bitcoin and Ethereum ETFs. Backed by mainland China, Hong Kong has become a "fortress" for inclusive regulatory experiments in cryptocurrencies in the Greater China region, and the various experiences and response strategies to risk events it has gone through can serve as valuable references for mainland China in the future.

In addition, in recent years, countries such as Singapore and Japan have also been exploring stablecoin regulation, or limiting stablecoin issuers to licensed institutions, emphasizing compliance and investor protection. Overall, the current global regulation gradually reflects the following commonalities: strengthening anti-money laundering measures, clarifying stablecoin issuance rules, promoting cross-jurisdictional cooperation, and referencing or adhering to the Financial Stability Board's principle of "same business, same risks, same regulation."

Reflections on China's Current Regulatory Rules

China's three regulatory documents related to cryptocurrency assets have played an important role in combating domestic speculation and controlling financial risks. However, in the long term, there are some areas that need improvement.

First of all, the normative documents lead to the ambiguity of the legal attributes of crypto assets and the dilemma of protecting the rights and interests of legitimate holders. Some judicial authorities directly determine that crypto assets are "illegal", and law enforcement agencies in some places carry out "deep-sea fishing" against legitimate holders, which detains the holders' crypto assets without a legal basis, which deviates from the basic spirit of administration according to law. In criminal cases, the valuation standards of the judicial authorities when confiscating bitcoin are not uniform, and the judicial disposal lacks legal procedures and valuation standards, which leads to doubts about the legality of the realization and even breeds problems such as the transfer of benefits.

Secondly, the innovation suppression effect of the "one-size-fits-all" policy. While prohibiting financial institutions from providing services for virtual currencies mitigates risks, it also hinders the application of blockchain technology in areas such as cross-border payments (like stablecoins) and the tokenization of real-world assets (RWA). In contrast, the EU's Markets in Crypto-Assets Regulation achieves a balance between financial innovation and security through classified regulation, while Hong Kong attracts compliant enterprises to innovate and start businesses through a licensing pilot.

Finally, inadequate participation in international governance and the weakening of discourse power. The United States dominates the rules of the cryptocurrency market through strategic Bitcoin reserves, which may further squeeze China's discourse space in this field in the future. Many developed countries and regions have established or are preparing to establish regulatory frameworks for the classification of crypto assets. In this area, China has participated less systematically in the international standard-setting of the Financial Stability Board and the Financial Action Task Force on Money Laundering, with domestic regulatory documents being out of sync with international regulatory trends.

China's Regulatory Optimization Path

First of all, in the field of crypto assets, relevant government departments should pay attention to the rebalance between financial security and financial innovation, actively participate in global governance, and promote the coordination of rules. In particular, it actively participates in the rule-making of international organizations such as the Financial Stability Board and the Financial Action Task Force on Money Laundering to enhance its influence in this field. China's financial regulatory authorities can further encourage, advocate, and try to implement stablecoins with offshore RMB as the core, and introduce regulatory rules with anti-money laundering and asset reserves as the core, so as to deal with the monopoly of the crypto asset trading market by US dollar stablecoins; Support Hong Kong to deepen the pilot of licensing, explore linkage with mainland regulators, and consider relaxing the participation of mainland qualified investors or investment institutions in crypto-asset trading in Hong Kong in the future.

Second, a hierarchical regulatory framework should be established to clarify the legal attributes of crypto assets. In terms of classification supervision, we can refer to the EU's Act on the Supervision of the Crypto-asset Market to divide crypto-assets into payment (such as stablecoins), securities (such as platform coins), commodities (such as Bitcoin) and aircoins suspected of fraud, and set differentiated management rules. For payment-based crypto assets, issuers are required to establish an anti-money laundering mechanism and a fiat currency reserve proof mechanism; For securities-based crypto assets, it is required to comply with the provisions of China's securities law; The trading of commodity-based crypto assets should comply with anti-money laundering requirements. At the same time, we will clarify the standards of "Air Coins", establish dynamic monitoring lists and standards, and severely crack down on speculation and fraud of all kinds of "Air Coins". For crypto assets that meet the standards of classification and regulatory rules, especially mainstream crypto assets with strong global social consensus and typical decentralized characteristics, the property rights of crypto assets should be clarified, and the property rights of private key controllers may be recognized through judicial interpretations and guiding cases of the Supreme People's Court, and a standardized and legalized process for judicial disposal should be established.

Once again, explore the management of national cryptocurrency asset reserves. It is reported that governments at all levels in China currently hold about 190,000 bitcoins. In response to the global regulatory trend, our country can reference the United States to establish a "strategic bitcoin reserve" model, incorporating it into the foreign exchange management framework to hedge against the risk of depreciation of dollar assets.

Finally, improve the technical regulatory tools to combat new types of crimes. Public security agencies can promptly use on-chain data analysis technologies to monitor the flow of crypto assets, enhancing technical means to effectively combat new types of crimes involving crypto assets.

Global cryptocurrency asset regulation is shifting from allowing "wild growth" in the past to a current focus on "rule reconstruction." In light of this trend, China needs to avoid missing the opportunities of the technological revolution due to policy lag while adhering to the bottom line of financial security, actively participate in rule-making, and gain discourse power.

In the short term, the national financial regulatory authorities can encourage the Hong Kong Special Administrative Region government to further deepen, improve, and thoroughly implement measures in the areas of cryptocurrency trading, investment, and technological innovation, assess the associated risks, and summarize replicable experiences. This can provide a reference for exploring the future possibilities of cryptocurrency trading and technological innovation in mainland China, drawing on Hong Kong's practices. In the medium to long term, China may consider moving towards an inclusive and prudent regulatory new era in this field—by legislating to clarify the property rights of cryptocurrencies, participating in the formulation of international rules, and leveraging the national strategic Bitcoin reserves to enhance the discourse power of cryptocurrencies. Only by balancing financial security and financial efficiency can we take the initiative in the new round of global financial competition.

(The author is a professor at the Law School of Central University of Finance and Economics and the director of the Fintech Legal Research Center)