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People’s Bank of China (PBoC), in its latest financial stability report, called for a global effort to create regulations for the crypto market, addressing issues related to cryptocurrency asset regulation and decentralized finance (DeFi). The Chinese Central Bank dedicated a separate section to crypto assets in its new financial stability report, emphasizing the need for the sector to be regulated through joint efforts by different countries.
China’s Noteworthy Report
The report published on December 22nd stated that the cryptocurrency market constitutes 1% of the global financial system and has limited connection with the traditional finance sector. According to Blockchain journalist Colin Wu, PBoC’s latest financial stability report is the first to allocate a separate section to crypto assets. The central bank called on governments worldwide to apply the same business, same risks, same regulation approach to avoid regulatory arbitrage.
The report referred to a number of potential risks arising from cryptocurrency regulation arbitrage, including vulnerabilities to hacker attacks, market manipulation, and concerns related to DeFi governance mechanisms.
PBoC specifically mentioned the collapse of the Terra ecosystem and the bankruptcy of the FTX exchange in 2022, highlighting the need to manage legal regulatory fragmentation and eliminate supervisory arbitrage. China’s move to encourage the global community to jointly regulate the cryptocurrency sector comes a few years after the Chinese government imposed a major ban on the crypto industry.
China May Take Steps Towards Crypto Market Regulation
In 2021, PBoC officially announced measures to combat the use of crypto assets in China and pressed for stronger inter-departmental coordination to block crypto activities in the country. Despite the ban covering almost all crypto transactions and mining, China continued to be a major center for crypto mining.
According to some industry executives like Animoca’s co-founder Yat Siu, Hong Kong’s rapid adoption of the crypto market could signal some major forward-looking regulatory moves in China’s crypto market stance. On the other hand, other local executives believe that China’s stance on crypto has nothing to do with the crypto-friendly moves in Hong Kong.
