China Declares Cryptocurrency Illegal​

By Robyn Ma​


The Story

China has declared all activities related to digital coins illegal.

This follows the People’s Bank of China's (PBoC) efforts to clamp down on cryptocurrency activities to avoid “disturbing economic and financial order, breeding illegal and criminal activity such as gambling, illegal fundraising, fraud, pyramid schemes and money laundering” (Financial Times).

A variety of factors seem to be behind China's decision, from the volatility of the currency to the challenges it poses to the government's control.

What It Means For Businesses And Law Firms

Cryptocurrency prices plummeted following China’s announcement. Bitcoin, the world’s largest cryptocurrency, fell by as much as 7% to around $41,100 (New York Times). China’s announcement has also led to a “great mining migration” to crypto-friendly countries (The Verge).

The announcement follows the country’s experiment with its own digital currency, the electronic Chinese yuan, which some view as an attempt by the government to use a state-controlled digital currency that may collect data on its citizens. Alternatively, New York Times contributor Li Yuan believes China’s “increasingly aggressive antitrust campaign” is a guise to cement the “Communist Party’s monopoly of power” (New York Times). The true purpose behind China’s recent regulatory changes remains open to speculation.

Regardless, some crypto advocates say that regulatory crackdown will force consumers and cryptocurrency firms to move offshore. Alternatively, others argue that comprehensive legislation and stricter enforcement could boost investor and consumer confidence, which may help the sector to grow (Financial Times).

US banking regulators have attempted to hold “interagency crypto sprints” to provide clarity through legislation (New York Times). Indeed, it is difficult to innovate without transparent regulation. Nonetheless, the lack of consistent regulation across borders means cryptocurrency firms will require the help of lawyers to navigate the tricky legalities surrounding their products.

With erratic regulation, cryptocurrency firms are pouring hundreds and thousands of dollars into compliance and antitrust measures in an attempt to meet regulatory standards. For example, cryptocurrency exchange Binance has seen its compliance and law enforcement team double - with numbers now in the “hundreds” (Financial Times). Moving forward, lawyers will be required to provide extensive advice to cryptocurrency companies on compliance and antitrust measures.