China's Supreme Court hardened its stance on cryptocurrencies this Thursday after enshrining them into law under the list of illegal fundraising methods. The court's decision was already expected, following late 2021 declarations from the court, the People's Bank of China and other high-profile government institutions. Under the new interpretation, which goes into effect on March 1st, individuals illegally dabbling in cryptocurrencies could be levied with fines up to RMB 500,000 ($79,000) and face up to ten years in prison.
"This is the first Supreme Court legislative interpretation to officially have cryptocurrency transactions covered under the Criminal Law," said Winston Ma, adjunct professor of the law school at New York University.
The new, legally-enshrined view on cryptocurrencies comes after many governmental decisions cracking down on the technology. A cryptocurrency mining ban was followed by a veritable hunt for illegal activities in the crypto space, prompting most of China's mining power to jump ship into less dangerous waters. Through the new legislation, suspects will be prosecuted under Article 176 of China's criminal law (opens in new tab), which stipulates prison sentences between three to 10 years and fines between RMB 50,000 (US$7,900) and RMB 500,000 ($79,000) for crimes involving large sums of money. Less serious crimes will be prosecuted with under three years of prison and RMB 20,000 ($3,160) to RMB 200,000 ($31,600) in fines.
Critically, the legislation refers to an extremely broad "cryptocurrency transactions" definition. This means virtually every movement associated with cryptocurrencies can fall under this umbrella term, as transactions are required in almost every cryptocurrency-related activity. The revised understanding of cryptocurrencies is aimed at "punishing illegal fundraising crimes in accordance with the law and maintaining national financial security and stability" and is being pursued as part of China's efforts to root out financial scams and money laundering. Of course, as we know, the crypto space isn't absent from these schemes.
China's decisions on cryptocurrency should not be mistaken as a sign that it is willing to abdicate the fundamental technological shift brought about by blockchain technology and tokenization. The country is in the advanced stages of its digital yuan experiments, which have already hit the ground running in several pilot programs across Chinese cities. A digital version of the country's national currency, the digital yuan, was used in more than $8 billion worth of transactions (opens in new tab) during the second half of 2021 alone. China's moves to regulate and constrain crypto usage on its soil likely come as a way to decrease the number of citizens and institutions conducting businesses in decentralized blockchains. This is the exact opposite of the digital yuan that is meant to be controlled in a centralized manner.
Interestingly, the overall cryptocurrency market seems to be mostly unaffected by the Russia-Ukraine war and the entrenchment of China's cryptocurrency policies. Market-maker Bitcoin, for instance, dropped 12% overnight from February 23rd to February 24th - the day both these events culminated in their respective stories. That has seemingly only been a blip on the cryptocurrency market's radar, however, as Bitcoin (and the market in general) has rebounded from those losses, currently trading at around 5% higher than before the dip.