Source: Journal of Shandong University, Philosophy and Social Sciences Edition

Abstract

With the vigorous development of crypto assets, the global regulatory paradigm is accelerating its differentiation. Developed economies represented by the European Union, the United States, the United Kingdom, and Hong Kong are actively formulating or updating relevant regulatory policies. China previously adopted a "comprehensive ban" regulatory strategy in the field of crypto assets, which temporarily curbed domestic speculation and controlled financial risks. However, in the face of the rapid evolution of the crypto asset ecosystem and international regulatory policies, prohibitive regulation is becoming increasingly impractical, and the structural conflict with the global development of crypto assets is becoming more apparent. This may stifle blockchain financial innovation and wealth effects, lead to serious inadequacies in the protection of legitimate holders' rights, and weaken China's discourse power in the formulation of international rules. China can, while ensuring financial security, also consider financial efficiency, re-examine the economic functions and strategic value of crypto assets, and promote the evolution of regulatory policies towards a phased "moderate opening." Specifically, it can implement classified regulation based on the risk characteristics of crypto assets, incorporate crypto asset activities into a compliance regulatory framework, and include crypto asset reserves in the national new economic development strategy, thereby occupying a commanding position in the new round of global digital financial competition and helping China move towards becoming a financial powerhouse.

In recent years, the global crypto asset market has entered a rapid development track, swiftly evolving from a marginal field to an important component of the global financial system and investment sector. Developed economies such as the United States, the European Union, the United Kingdom, Japan, Singapore, the UAE, and Hong Kong have formulated or are in the process of formulating regulatory policies for crypto assets, incorporating them into their national new economic development strategies. The EU's "Regulation on Markets in Crypto-Assets," effective in 2024, implements risk-based classified regulation for crypto assets. In 2025, the U.S. government announced the establishment of a Bitcoin strategic reserve and a U.S. digital asset reserve, and achieved formal legislation at the federal level for the "Guiding and Establishing National Innovation for U.S. Stablecoins Act" (referred to as the "GENIUS Act"), requiring stablecoins to be backed by U.S. dollars or short-term U.S. Treasury bonds. Starting in 2024, Hong Kong will implement licensing for mainstream crypto asset exchanges and practices for Bitcoin and Ethereum ETFs, and in 2025 will pass the "Stablecoin Regulation Draft."

Previously, China's financial regulatory authorities established a prohibitive regulatory framework through various administrative normative documents, including the "Notice on Preventing Bitcoin Risks" (2013), the "Announcement on Preventing Risks of Token Issuance Financing" (2017), and the "Notice on Further Preventing and Dealing with Risks of Crypto Asset Trading Speculation" (2021), as well as the Supreme People's Court's Guiding Case No. 199. These documents collectively view crypto asset-related transactions as "illegal financial" activities, prohibiting the pricing of Bitcoin in fiat currency, banning Bitcoin "mining," and cracking down on the entire crypto asset industry chain. The prohibitive policies have effectively curbed domestic speculation in crypto assets and prevented related financial risks, but as the market evolves, their controversial nature has gradually emerged, drawing the attention of a small number of researchers. On one hand, judicial authorities, influenced by the aforementioned administrative normative documents, have shown ambiguous and fluctuating recognition of the legal attributes of crypto assets. In the absence of formal legislation denying the legality of crypto assets, there is a severe lack of civil rights protection for legitimate holders of crypto assets, with some civil cases involving crypto assets being rejected by courts on the grounds of "risk borne by the individual," leading to a significant occurrence of "different judgments in the same case" in civil and criminal rulings. On the other hand, with the explosive growth of new crypto assets such as stablecoins in recent years, the prohibitive regulations of a single sovereign state are increasingly unable to address the challenges posed by crypto assets, failing to meet the minimal harm effect required for financial regulation.

Especially starting in 2025, developed economies represented by the United States will incorporate crypto assets into their national new economic development strategies, re-examining and adjusting their regulatory strategies for crypto assets, and introducing specific legislation for stablecoins, aiming to gain a competitive advantage in the new round of blockchain financial "arms race." The global crypto asset industry is undergoing rapid "business model innovation" and "rule reconstruction." In this context, the structural conflict between China's prohibitive regulation and the global development of crypto assets is becoming increasingly apparent, potentially no longer conforming to the "proportionality principle" required for financial regulation. This critical issue has not received sufficient attention from domestic financial regulators and legal scholars. "Law adapts to time, and governance is effective when it aligns with the world." How to timely adjust China's policies in conjunction with the international development trends of crypto assets and construct a regulatory framework that balances financial security with innovative inclusiveness is an urgent strategic issue for China to consider. Compared to existing domestic research, this article's innovation will be reflected in two aspects: first, the novelty of materials, systematically sorting out the recent development, innovation, and new regulatory policies of crypto assets in developed economies, and analyzing their trends and policy highlights. Second, it proposes clear and highly practical optimization paths for existing regulatory policies. Prohibitive regulation is essentially a continuation of "financial repression" policies, which have limitations in financial development and innovation, protection of financial consumer rights, and the formulation of international governance rules. This article will propose a policy adjustment from "comprehensive prohibition" to phased "moderate opening" from both theoretical discussion and practical pathways.

I. Concept of Crypto Assets and Regulatory Needs

(1) Concept and Ecosystem of Crypto Assets

Currently, there is no complete consensus or classification on the concept of crypto assets internationally. Crypto assets (crypto assets) are often mixed with concepts such as virtual currencies, private digital currencies, virtual assets, digital assets, and tokens. However, international organizations such as the Financial Stability Board (FSB), the International Monetary Fund (IMF), and the Basel Committee on Banking Supervision (BCBS) have frequently used the term "crypto assets" in recent regulatory policy recommendations and official documents. This article adopts the term "crypto assets," without distinguishing it from "virtual currencies" in China's regulatory normative documents, referring to assets such as Bitcoin, Ethereum, and Tether that are issued by non-monetary authorities, use cryptographic technology and blockchain distributed ledgers or similar technologies, and exist in digital form.

Bitcoin, born in 2009, is a typical example of decentralized privately issued crypto assets. Bitcoin features a decentralized peer-to-peer value transfer method based on a shared public ledger (using distributed ledger technology's public blockchain) and is not backed by any assets. Its original purpose was to enable transactions between individuals without a trusted third party through the coordination of incentives among network participants, solving the "double spending" technical problem. After the birth of Bitcoin, the crypto ecosystem rapidly expanded, attracting new market participants and forming a self-reinforcing cycle that propelled the price of crypto assets upward. Centralized exchanges played a key role in guiding capital into the crypto asset field, facilitating the exchange between crypto assets and fiat currencies. Subsequently, Ethereum was launched in 2015, with its core innovation being the introduction of smart contracts, allowing developers to deploy various decentralized applications on-chain, enabling automated transaction execution triggered by conditions, and promoting the prosperity of decentralized finance (DeFi). Decentralized finance is a new ecosystem that provides crypto services, enhancing transparency and reducing financial intermediaries to lower costs. DeFi protocols combine various smart contracts to provide lending, borrowing, and trading services within the crypto ecosystem. Crypto asset holders can engage in decentralized finance transactions, lending, and other financial activities using assets like Ether. At the same time, stablecoins are a key component of decentralized finance, maintaining relative stability in price against the fiat currency to which they are pegged, serving as a medium of payment and transaction in the crypto ecosystem.

(2) Risks of Crypto Assets and Regulatory Motivations

The "shadow banking" functions of crypto assets and decentralized finance share similarities with many loopholes in traditional financial markets, while also presenting new challenges to existing financial regulation. The motivations and goals for regulating the crypto market mainly include maintaining national financial security, protecting the rights and interests of financial consumers; maintaining financial market stability, and combating financial crimes such as fraud, manipulation, money laundering, and terrorist financing.

First, crypto assets challenge the fiat currency system, especially stablecoins pegged to the U.S. dollar, which may lead to the substitution of other countries' fiat currencies and accelerate the risk of cross-border capital flows. Crypto assets objectively bypass the existing fiat currency system, banking system, and third-party payment systems, establishing a brand new currency and payment system. The International Monetary Fund refers to this phenomenon as "cryptoisation," indicating the substitution of domestic fiat currencies by crypto assets. In other words, investors in some countries hold large amounts of crypto assets, and there is a phenomenon of crypto assets (mainly U.S. dollar stablecoins) replacing local currencies. These stablecoins are replacing domestic currencies and assets, circumventing exchange rate and capital control restrictions. This will reduce the monetary authority's control over liquidity in the economy, affect the transmission channels of monetary policy, weaken the effectiveness of monetary policy, and may even spread to other regulated entities or the real economy, triggering systemic risks.

Second, crypto assets can easily be used as tools for illegal activities, facing difficulties in accountability. The crypto asset ecosystem has seen the emergence of products and services that enhance anonymity, such as privacy coins, mixers, decentralized platforms and exchanges, and privacy wallets. These tools reduce the transparency of financial flows and exacerbate information confusion, facilitating risks of tax evasion, money laundering, terrorist financing, fraud, and market manipulation. Compared to traditional financial transactions, there are significant information gaps in crypto assets and decentralized finance, such as the identities, technical backgrounds, and compliance records of developers and traders often being hidden, making it difficult for users to assess their credibility or motives, significantly amplifying the risks of information asymmetry. Furthermore, the "decentralized" nature of blockchain is in stark contrast to the "centralized" structure of financial regulatory systems, making it difficult for regulation to control risks through traditional financial intermediaries. The anonymity and cross-border nature of crypto assets pose significant challenges for regulation and tracking, putting investors' funds at great risk and presenting important challenges for regulatory agencies and law enforcement.

Third, crypto assets may enhance financial risks. One of the most popular uses of crypto assets is for investment (speculation) and trading (hype). The markets for the issuance, buying, selling, exchanging, and storing of crypto assets, along with their related products, tools, intermediaries, applications, and technologies, have experienced explosive growth, significantly expanding both retail and institutional usage. The global range of crypto asset investors is continuously broadening. According to the "2024 Crypto Wealth Report" published in collaboration with the UK consulting firm Henley & Partners, the crypto asset market has seen significant wealth creation and scale expansion, achieving overall growth in the number of wealthy individuals, total users, and overall market capitalization. As of the end of June 2024, the number of global crypto asset users reached 560 million, with 172,300 holders owning more than $1 million in crypto assets. With the rapid growth in participation and scale in the crypto market, crypto assets are gradually deepening their connections with traditional finance and the real economy, raising regulatory concerns about their potential spillover effects on financial stability. Failures of key service providers in the crypto asset ecosystem (such as crypto exchanges) can quickly transmit risks to other parts of the ecosystem. The price volatility of crypto assets, coupled with leveraged trading, liquidity mismatches, and interconnections with the traditional financial system, can amplify systemic financial risks. These challenges and risks reinforce the global necessity for regulating crypto assets.

II. Global Regulatory Dynamics of Crypto Assets

The rapid expansion of the crypto asset market has raised concerns about inadequate mechanisms for protecting financial consumer rights and its impact on financial stability. Global financial regulatory agencies are accelerating the legislative process for activities related to crypto assets. In the new trends of crypto asset regulation, the regulatory practices of the following countries or regions are worthy of close attention.

(1) Core Connotations of Regulatory New Policies in Developed Economies

First, the EU's unified legislation and risk-based classified regulation. In May 2023, the European Council voted to approve the "Markets in Crypto Assets" (MiCA) regulation. MiCA provides a comprehensive regulatory framework for the EU's crypto asset market. Following the idea of classified regulation, MiCA details the definitions and uses of crypto assets, the licensing of crypto asset issuers and service providers, the operational management of crypto asset issuers and service providers, the management of reserves and redemptions by crypto asset issuers, and anti-money laundering regulations for crypto asset trading activities. It is the most comprehensive crypto asset regulatory legislation globally to date. MiCA categorizes crypto assets into Asset-Referenced Tokens (ART), E-money Tokens (EMT), and other crypto assets, establishing differentiated regulatory rules. Notably, MiCA does not cover crypto assets that meet the conditions of other regulated instruments, such as DeFi, NFTs, and security tokens, nor does it cover central bank digital currencies (CBDCs). In terms of regulatory targets, MiCA primarily regulates the establishment and operational activities of crypto asset issuers and service providers.

Second, the U.S. policy to promote crypto assets and strategic reserve plans. In March 2022, the U.S. issued an "Executive Order on Ensuring Responsible Development of Digital Assets," establishing a federal-level development strategy for U.S. digital assets, supporting digital asset development, and positioning the U.S. as a leader in blockchain innovation and digital asset technology. The U.S. Securities and Exchange Commission (SEC) approved Bitcoin spot and Ethereum spot ETFs in 2024, attracting significant capital inflows from traditional investment institutions. In January 2025, newly elected President Trump signed an executive order to "Strengthen America's Leadership in Digital Financial Technology," announcing the establishment of a new regulatory system for digital assets, requiring the protection of public chain access and the freedom of digital assets, and forming a presidential "Digital Asset Market Working Group" to manage the issuance and operation of U.S. digital assets. A new "Digital Asset Council" was established to prohibit the issuance of central bank digital currencies and promote legislative matters such as the research of Bitcoin strategic reserves, aiming to make the U.S. the "world capital of cryptocurrency."

In March 2025, Trump signed an executive order announcing the establishment of a Strategic Bitcoin Reserve and a U.S. Digital Asset Stockpile, incorporating approximately 200,000 confiscated Bitcoins into the national reserve, and forming a "dollar-stablecoin-crypto market" cycle by supporting dollar stablecoins (such as USDT, USDC), reinforcing the dollar's pricing position in global crypto asset trading. In July 2025, the U.S. Congress voted to pass the "Guiding and Establishing National Innovation for U.S. Stablecoins Act," which will take effect after being signed by the president, establishing clear rules for the issuance, legal reserves, transparency, and regulation of dollar-backed stablecoins, thereby solidifying the mechanism linking digital stablecoins to the dollar. At the same time, the U.S. House of Representatives passed the "Digital Asset Market Clarity Act of 2025" (referred to as the "CLARITY Act"). This act categorizes digital assets into digital commodities, investment contract assets, and non-commodity collectibles, clarifying disputes over the attributes of crypto assets and defining the regulatory landscape, with the CFTC responsible for the digital commodity spot market and the SEC responsible for securities issuance and anti-fraud enforcement. The U.S. government supports the compliant and innovative development of crypto assets while incorporating the crypto market into the U.S. financial system, binding stablecoins to the dollar system (dollars and Treasury bonds). This act utilizes stablecoins to strengthen the dollar's position in the international monetary system, increasing global acceptance and demand for digital payments in dollars, propelling the U.S. to control the future of digital finance, and reinforcing U.S. financial dominance, which is a strategic intention that deserves high attention from China.

Third, Hong Kong's crypto asset-friendly policies. In October 2022, as an important financial opening window for China, the Hong Kong Special Administrative Region government released a "Policy Declaration on the Development of Virtual Assets in Hong Kong," explaining the macro policies and development direction for crypto assets in Hong Kong under the technological trends of distributed ledger technology (DLT) and Web 3.0. It also proposed principled ideas for sandbox regulation of non-fungible token (NFT) issuance, digital issuance of green bonds, and digital Hong Kong dollars. The Financial Services and the Treasury Bureau (FSTB) of the Hong Kong Special Administrative Region government published the "Policy Declaration on the Development of Virtual Assets in Hong Kong" in October 2022, clarifying the regulatory vision and policy direction for virtual/digital asset activities under the principle of "same business activity, same risk, same regulation." In June 2023, the Hong Kong Special Administrative Region government established a working group to promote the development of Web 3. Since 2024, Hong Kong has shifted from its previous strict regulatory trend to implement a licensing system for trading mainstream crypto assets (Bitcoin and Ethereum), with security tokens subject to the Securities and Futures Ordinance, non-security tokens included in anti-money laundering regulations, and successfully exploring the listing and trading of Bitcoin and Ethereum ETFs. In May 2025, the Legislative Council of the Hong Kong Special Administrative Region passed the "Stablecoin Regulation Draft," establishing a licensing system for fiat-backed stablecoin issuers in Hong Kong, set to be implemented on August 1. In June 2025, Hong Kong released the "Hong Kong Digital Asset Development Policy Declaration 2.0," proposing a "LEAP" framework with four major strategies, including optimizing laws and regulations, expanding the types of tokenized products, promoting application scenarios and cross-sector cooperation, and developing talent and partnerships, while clearly regularizing the tokenization of government bonds and promoting the tokenization of real-world assets such as precious metals, non-ferrous metals, and renewable energy, reaffirming Hong Kong's goal of becoming a global innovation center in the digital asset field.

(2) Analysis of Policy Characteristics in Developed Economies

In July 2023, the Financial Stability Board (FSB) released the final report on the "Global Regulatory Framework for Crypto-asset Activities," drawing on the experiences of jurisdictions in implementing international standards, proposing overall principles for regulatory recommendations: first, the "same business, same risk, same regulation" principle. If crypto asset businesses have the same economic functions as traditional financial businesses and are accompanied by the same types of financial risks, they should comply with the same regulatory requirements. Second, the flexibility principle. Regulatory authorities in various economies can apply existing laws and regulations to the crypto asset industry or formulate new laws and regulations to implement relevant regulatory recommendations. Third, the technology neutrality principle. Regulatory authorities in various economies should regulate based on the economic functions and risk characteristics of crypto asset businesses, rather than their underlying technologies. Based on these international standards, developed economies have issued relevant proposals or formal legislation regarding crypto asset-related activities, reflecting the following characteristics overall.

First, a crypto asset-friendly regulatory attitude and framework. In the early stages of crypto asset development, countries exhibited differences in regulatory policies, with varying emphases on balancing innovation and risk. However, recently, developed economies have re-examined and adjusted their regulatory strategies for crypto assets, actively guiding and creating a crypto asset-friendly regulatory attitude and framework. President Trump's attitude towards non-sovereign cryptocurrencies like Bitcoin underwent a significant shift, moving from "Bitcoin is a scam competing with the dollar" to "Bitcoin does not pose a threat to the dollar," adopting a positive and inclusive policy towards crypto assets. The Trump administration explicitly abolished the previous "Digital Assets Executive Order" and the Treasury's "Framework for International Engagement on Digital Assets," believing these laws suppressed innovation and undermined America's economic freedom and global leadership in digital finance. The regulatory policies of developed economies are transitioning from fragmented rules to a systematic framework, presenting a crypto asset-friendly policy posture that attracts funding or capital accumulation by increasing policy certainty.

Second, strengthen compliance requirements for anti-money laundering and counter-terrorist financing (AML/CFT). Anti-money laundering and combating the financing of terrorism are core elements of crypto asset regulation. Regulatory agencies in developed economies typically base their regulations on the standards set by the Financial Action Task Force on Money Laundering (FATF), using crypto asset service providers as a regulatory focus, and require strict implementation of AML and CFT measures. In June 2019, the FATF updated Recommendation 15 and its interpretative notes, and released the "Guidance for a Risk-Based Approach for Virtual Assets and Virtual Asset Service Providers," applying AML and CFT measures to virtual assets (VA) and virtual asset service providers (VASP). A key requirement is the "travel rule," which mandates that countries ensure that the virtual asset service provider of the originator can obtain, hold, and exchange information about the transaction remitter and recipient instantly and securely during transactions, and safely transmit this information to the recipient's virtual asset service provider or relevant financial institution when necessary. The FATF's recommendations for AML regulation of crypto assets are seen as a benchmark for countries' AML laws regarding crypto assets. Developed economies such as the U.S., EU, Japan, and Singapore are enhancing their AML regulations for crypto assets through institutional unification and law enforcement, gradually establishing a compliance system centered on virtual asset service providers. The FATF's "Special Update on the Implementation of Standards for Virtual Assets and Service Providers" released in 2025 indicated that in the 2025 survey, 73% of the surveyed jurisdictions (85 out of 117 jurisdictions, excluding those that explicitly prohibit or plan to prohibit VASPs) had passed legislation implementing the "travel rule."

Third, emphasize risk-based classified regulation. Developed economies often refer to or follow the "same business, same risk, same regulation" principle proposed by the Financial Stability Board for classified regulation. A common classification method is based on whether crypto assets attempt to stabilize their value by referencing other assets, with those having a stabilization mechanism referred to as "stablecoins" and those without a stabilization mechanism referred to as "unbacked crypto-assets." For stablecoins with a value stabilization mechanism, MiCA further categorizes them based on the underlying assets into two types: asset-referenced tokens (anchored to one or more fiat currencies, commodities, crypto assets, or a combination of these assets) and e-money tokens (anchored to one fiat currency), establishing differentiated regulatory rules. Additionally, many countries or regions actively promote the application of securities laws in the crypto asset field, distinguishing crypto assets with financial instrument characteristics (including securities) from other crypto assets, with the former sometimes referred to as "security tokens," which may be subject to the same regulations as financial instruments and securities issuers. The Swiss Financial Market Supervisory Authority (FINMA) in 2018 first issued guidelines for the regulation of initial coin offerings (ICOs), categorizing crypto assets into payment tokens, utility tokens, and asset tokens. Based on different functions, the FINMA defines payment tokens as "non-securities" payment methods, more akin to currency; asset tokens are defined as "securities" closely related to financial products, while utility tokens are distinguished based on whether they have additional investment purposes, applying different regulatory frameworks accordingly. Of course, these classifications are not always clear-cut. For instance, the Securities and Futures Commission (SFC) of the Hong Kong Special Administrative Region pointed out that the terms and characteristics of crypto assets may evolve over time, with non-security tokens potentially becoming security tokens and vice versa, and it further suggested that crypto asset service providers should "prudently" apply for licenses related to both types of assets.

III. Characteristics and Limitations of China's Prohibitive Policies

(1) Phased Evolution of Prohibitive Policies

The potential risks of crypto assets necessitate the intervention of financial regulatory authorities. China has gradually expanded the scope of prohibitive regulation, as detailed below.

The first phase is the risk warning phase. To protect public property rights and prevent money laundering risks, in December 2013, the People's Bank of China and other departments issued the "Notice on Preventing Bitcoin Risks" (Yin Fa [2013] No. 289), clarifying that Bitcoin is not currency but a specific virtual commodity. Bitcoin trading, as a commodity transaction on the internet, allows the general public the freedom to participate at their own risk. Regulatory authorities maintained a generally cautious attitude in the early stages of crypto asset development, acknowledging Bitcoin's legal property status and allowing limited on-exchange and off-exchange trading.

The second phase is the key risk rectification phase. In 2017, initial coin offerings (ICOs) surged globally, with many projects raising funds by issuing tokens on Ethereum. In an ICO, initiators sell a certain token (crypto asset) to a group of investors, absorbing investors' fiat currency or mainstream crypto assets like Bitcoin. The crypto assets issued through ICOs are similar to traditional stocks or debt certificates, with holders entitled to claim specific property rights from the issuer, thus being referred to as "security tokens" and "utility tokens." However, in many cases, unregulated and unconstrained ICOs often became a means for fraudsters to engage in illegal financial activities. ICOs were commonly suspected of illegally absorbing public deposits or engaging in fundraising fraud, with initiators inflating token prices and then quickly selling them for profit, resulting in significant losses for token purchasers. In September 2017, the central bank and other ministries issued the "Announcement on Preventing Risks of Token Issuance Financing," clearly stating that no organization or individual may illegally engage in token issuance financing activities, requiring an immediate halt to all types of token issuance financing activities, prohibiting financial payment institutions from participating in crypto asset businesses, and demanding the closure of domestic exchanges, which effectively controlled related financial risks in the short term.

The third phase is the comprehensive prohibition phase. In May 2021, the State Council's Financial Stability Development Committee held its 51st meeting, proposing to resolutely prevent and control financial risks and crack down on Bitcoin "mining" and trading activities. Subsequent regulatory policies quickly implemented the spirit of this meeting. In September 2021, the National Development and Reform Commission and other departments issued the "Notice on Rectifying Virtual Currency Mining Activities," categorizing mining activities as an industry to be eliminated, strictly prohibiting new mining projects, and strengthening strict regulation of the entire upstream and downstream industrial chain of crypto asset "mining." In September 2021, the central bank and other ministries issued the "Notice on Further Preventing and Dealing with Risks of Virtual Currency Trading Speculation," emphasizing that activities related to crypto assets are illegal financial activities and are strictly prohibited, with a firm commitment to lawfully ban them, including services provided by overseas exchanges to domestic residents. Notably, the "Notice on Further Preventing and Dealing with Risks of Virtual Currency Trading Speculation" added the Supreme People's Court, the Supreme People's Procuratorate, and the Ministry of Public Security as issuing bodies, giving financial regulatory rules significant influence in law enforcement and judicial adjudication, and clearly stating that any legal person, unincorporated organization, or individual investing in crypto assets and related derivatives in violation of public order and good morals will have their related civil legal actions deemed invalid, with losses arising from this borne by themselves.

In February 2022, the Supreme People's Court amended the "Interpretation on Several Issues Concerning the Application of Law in the Trial of Criminal Cases of Illegal Fundraising" (Fa Shi [2022] No. 5), explicitly listing "virtual currency trading" as a method of illegally absorbing funds, providing a clear basis for judicial authorities to combat such crimes. In August 2024, the Supreme People's Court and the Supreme People's Procuratorate jointly issued the "Interpretation on Several Issues Concerning the Application of Law in Handling Criminal Cases of Money Laundering," for the first time explicitly listing "transferring or converting criminal proceeds and their benefits through 'virtual assets' trading and financial asset exchange" as money laundering behavior.

China adopts a vigilant attitude towards the risks associated with crypto assets, characterizing them negatively, ultimately presenting a feature of prohibitive regulation. Prohibitive regulation covers three dimensions: first, a comprehensive ban on the entire industry chain at the administrative regulatory level. At the issuance level, it prohibits the creation of crypto assets through mining or ICOs; at the trading level, it prohibits any domestic or foreign entities from providing custody, settlement, exchange investment, information consulting, and other crypto asset services to domestic residents. Second, at the criminal level, it closely connects certain activities with illegal and criminal activities. Based on the administrative norms that clarify the illegality of crypto asset trading activities, specific crypto asset trading behaviors are incorporated into illegal fundraising, money laundering, and other criminal activities through judicial interpretations, thereby reinforcing the "illegality" of crypto asset-related trading activities and the "legitimacy" of prohibitive activities. Third, at the civil judicial level, there is no protection provided. The impact of prohibitive regulation permeates and spreads from administrative regulation to the judicial level, conveying signals of the illegality of crypto asset trading and risk prevention to society. Regulatory authorities or judicial bodies tend to deem civil actions such as entrusted investment in crypto assets as invalid due to violation of public order and good morals, providing no relief or protection for related investors' losses, further enhancing the proactive effect of financial justice and strengthening the collaborative governance of financial justice and financial regulation.

(2) Limitations of China's Prohibitive Regulatory Policies

China's phased and gradual expansion of the prohibitive scope surrounding crypto assets has played an important role in combating domestic speculation, addressing illegal activities related to cryptocurrencies, and controlling financial risks. However, with the rapid evolution of the crypto asset ecosystem and international regulatory trends, the limitations of prohibitive regulation have become increasingly apparent.

First, the legitimacy basis of prohibitive regulatory norms is questionable. The "Notice on Preventing Bitcoin Risks," the "Announcement on Preventing Risks of Token Issuance Financing," and the "Notice on Further Preventing and Dealing with Risks of Virtual Currency Trading Speculation" constitute the normative basis for crypto asset regulation. From the perspective of the drafting entities and procedures, these documents were jointly formulated and issued by the People's Bank of China and other ministries (departments), with a relatively simple legislative process that does not meet the high standards required for regulatory formulation under the "Regulations on the Procedures for Formulating Rules." Therefore, in terms of legal effect, they can only serve as "normative documents below regulations." According to Article 80 of China's Legislative Law, without provisions from laws or administrative regulations, rules cannot self-empower, cannot diminish citizens' rights and freedoms, and cannot increase their obligations. Thus, normative documents do not have the authority to directly create provisions that diminish citizens' rights or increase their obligations; otherwise, their own legitimacy would be in dispute. The "Notice on Further Preventing and Dealing with Risks of Virtual Currency Trading Speculation" asserts that activities related to crypto assets "are suspected of illegal activities such as illegal issuance of token vouchers, unauthorized public issuance of securities, illegal operation of futures business, and illegal fundraising," and should "be strictly prohibited and resolutely banned by law." In practice, crypto asset-related business activities are complex and varied, and the "one-size-fits-all" illegality and prohibition provisions of normative documents exclude the obligation to investigate and adjudicate individual cases, leading to the prohibition of some legitimate behaviors. At the same time, prohibitive provisions deprive market entities of individual freedom to participate in crypto asset trading, potentially infringing on citizens' rights and raising concerns about legitimacy.

Second, prohibitive regulation has failed to effectively protect the rights and interests of financial consumers, and has even exacerbated the difficulties in protecting the rights of legitimate crypto asset holders. Due to the reserved nature of the policies and the abstract wording, the regulations in the crypto asset field are overall not systematic, stable, or clear, leading to divergent interpretations of regulatory policies in practice. Influenced by the strict regulatory stance, judicial authorities have a cognitive bias regarding the legal attributes of crypto assets, resulting in numerous instances of inconsistent judgments in similar cases, which easily raises public doubts. Regarding the legal attributes of crypto assets, some courts recognize them as legally protected "virtual property," while others consider them illegal property or unlawful objects. In terms of the validity of civil legal actions involving crypto assets, there are two viewpoints: the "validity theory" and the "invalidity theory." Especially after the issuance of the "Notice on Further Preventing and Dealing with Risks of Virtual Currency Trading Speculation" in 2021, courts tend to invoke this normative document, deeming contracts for entrusted investment involving crypto assets as invalid for violating Article 153, Paragraph 2 of the Civil Code, which pertains to "public order and good morals." In cases involving crypto assets, some arbitration institutions support "substituting fiat currency for return," but the key points of the Supreme People's Court's Guiding Case No. 199 indicate that arbitration awards compensating in fiat currency equivalent to Bitcoin violate national financial regulatory provisions and public interest. Although this judicial approach aligns with the regulatory policy direction of comprehensive prohibition of virtual currencies by administrative agencies, it is detrimental to the protection and relief of legitimate rights of crypto asset investors, and may even foster social adverse selection and increase moral hazard. Currently, China's prohibitive regulatory policies have led some judicial authorities to have a cognitive tendency towards "illegal speculation in cryptocurrencies" or even "illegal activities involving cryptocurrencies," automatically associating crypto asset trading with illegal and criminal activities. This has had widespread negative impacts on some legitimate crypto asset holders in certain regions, such as some public security agencies seizing individuals' crypto assets without legal basis.

Moreover, cases in the crypto asset field involve a wide range of stakeholders and high-value assets, often related to charges such as organizing and leading pyramid schemes and operating illegal gambling, which are subject to "forfeiture." These two factors have led to increased enforcement efforts by judicial authorities against activities in the crypto asset field, which can easily trigger issues such as "offshore fishing" and "profit-driven law enforcement." Some public authority institutions have handed over confiscated large amounts of crypto assets to third-party companies for sale, raising serious issues of interest transfer. The judgment documents of the major network pyramid scheme case known as "Plus Token," dubbed the "largest fund pool in the crypto circle," show that after the incident, investigative authorities seized 194,775 Bitcoins and 833,083 Ethereum. Defendant Chen applied to the public security agency to authorize a certain technology company in Beijing to legally sell the confiscated crypto assets overseas, with all proceeds treated as restitution. The funds and profits obtained were to be confiscated and turned over to the national treasury. This handling method faces significant legitimacy and rationality issues: first, the exchange of crypto assets for fiat currency within China is considered illegal financial activity. This regulation also constrains state agencies; even if judicial departments intervene in the transaction process, its illegal nature does not change. Second, China prohibits financial institutions or related platforms from engaging in cryptocurrency-related businesses, making it impossible to find official institutions or professional organizations for entrusted custody domestically, thus forcing reliance on overseas trading platforms for related business, which does not align with the functional positioning, legal attributes, and requirements of China's public security and judicial institutions. This method also lacks effective regulation, making it prone to occupational crimes and interest transfer.

Third, prohibitive regulation stifles financial innovation in the crypto asset ecosystem and the public's wealth benefits. Although China's regulatory policies have curbed risks, they have also hindered numerous applications of blockchain technology in areas such as cross-border payments (e.g., stablecoins), real asset tokenization (RWA), decentralized finance, and stock tokenization. Furthermore, financial institutions and technology research and development organizations, as market entities pursuing efficiency, have had to redirect resources originally intended for compliant technological innovation towards building offshore structures to avoid regulation due to policy uncertainty, potentially pushing financial innovation outside the country. In the context of global fiat currency depreciation and increasingly frequent capital controls, mainstream crypto assets have gradually become important tools for global asset allocation and personal wealth preservation. The U.S. has clearly established a Bitcoin and crypto asset reserve strategy, while China's prohibitive regulation casts a shadow of "illegality of the object" over crypto assets, objectively leading individuals, enterprises, and even the state to lose this important anchor asset. Citizens, market entities, and even public authority institutions in China face significant restrictions and severe legal obstacles in holding, trading, and disposing of crypto assets, making it difficult to participate in the crypto asset market or share investment returns. In the wave of globalization of digital assets, they face developmental difficulties, which may severely impact the accumulation of wealth and financial returns for citizens of a country, and even affect a nation's financial security.

Fourth, prohibitive regulation leads to insufficient participation in international governance and a weakening of the power to formulate international rules. Many developed countries or regions have established or are preparing to establish classified regulatory frameworks for crypto assets and are actively putting them into practice. The MiCA legislation explicitly states that the EU continues to support promoting global collaborative governance of crypto assets and crypto asset services through international organizations such as the Financial Stability Board, the Basel Committee on Banking Supervision, and the FATF. The UK's Financial Conduct Authority has stated the need to learn from and interact with international partners and regulatory bodies to ensure that the frameworks developed are closely aligned with international standards. The UK's Financial Conduct Authority has played a leading role in the crypto asset work organized by the International Organization of Securities Commissions, spearheading the development of policy recommendations for crypto assets and digital assets and promoting their implementation; it has also closely collaborated with the Financial Stability Board and the FATF, leading a thematic peer review on the global regulatory framework for crypto asset activities.

China has been in a state of strict regulation for a long time, with limited systematic participation in the formulation of international rules by the International Organization of Securities Commissions, the Financial Stability Board, and the FATF, contributing little to the development of rules related to crypto assets. For example, in June 2025, the FATF released "Best Practices for Travel Rule Regulation," providing good practice examples that jurisdictions can consider when formulating regulatory frameworks. However, China has explicitly prohibited the activities of crypto assets and their service providers, making it impossible to implement the travel rule and even more difficult to develop best practices for it. The FATF has also pointed out the limitations of prohibitive regulation in the "Best Practices for Travel Rule Regulation," including that "stablecoin issuers need to freeze illegal funds, but require regulatory cooperation from jurisdictions. Regions that have not implemented the travel rule (such as some prohibitive countries) cannot provide a cooperation framework," and "differences in jurisdiction implementation lead crypto asset service providers to need to individually review transactions from regions that have not implemented it (such as China), significantly increasing compliance costs and risk delays." China's prohibitive regulation may face issues of weak institutional adaptability and insufficient international coordination, with domestic regulatory documents disconnected from international regulatory trends, which may further squeeze China's discourse space in this field in the long run.

IV. Shift and Improvement of China's Regulatory Strategy

(1) Re-recognition of the Strategic Significance of Crypto Assets

Crypto assets hold significant strategic value in the construction of a financial powerhouse. In 2023, national leaders proposed the key core financial elements of "six strengths" in building a financial powerhouse—strong currency, strong central bank, strong financial institutions, strong international financial center, strong financial regulation, and strong financial talent—pointing the way for the development of finance with Chinese characteristics. Within this strategic framework, crypto assets, as an important carrier of the financial technology revolution, have strategic value in enhancing China's financial competitiveness. First, in promoting the internationalization of the renminbi, Hong Kong's regulatory sandbox plan is testing stablecoins pegged to offshore renminbi and other fiat currencies for cross-border payments. This innovation allows the renminbi to bypass the traditional SWIFT system restrictions, achieving efficient circulation of "payment as settlement," enhancing the efficiency of renminbi cross-border trade settlement, and expanding the currency's carrier function. Stablecoins pegged to the renminbi can enhance its multiple functions as a pricing currency, payment currency, and reserve currency. Establishing an offshore renminbi stablecoin system could attract countries along the "Belt and Road" to use it as a trade settlement and reserve asset tool, forming a technology-driven new path for the internationalization of the renminbi, thus becoming a driving force for the renminbi to become a "strong currency."

Second, developed economies such as the U.S. are attempting to lead innovation in crypto assets, and China's prohibitive policies may miss the opportunity to build a financial powerhouse. Blockchain finance features "disintermediation," with developments from stablecoins to real asset tokenization (RWA) based on Web3 representing a shift in financial innovation that transcends traditional bank-dominated financial intermediation, potentially giving rise to new types of "strong financial institutions." China could consider guiding private capital to allocate crypto assets through compliant channels (such as mainstream crypto asset ETFs) in stages, indirectly expanding national strategic reserves and avoiding falling behind in the competition for "digital gold." Legalizing crypto asset trading would guide "underground finance" into the light, preventing systemic risks. There is a long-standing practical demand for crypto asset allocation among certain domestic groups, as Bitcoin has anti-inflation properties; its price often rises in response to the global fiat currency inflation rate. Similar to gold's anti-inflation asset function, Bitcoin also has advantages such as a constant supply, portability, divisibility, and independence from specific national monetary policies, leading investors to view Bitcoin as "digital gold" to hedge against fiat currency depreciation. We believe Bitcoin is "an important wealth carrier for the next generation," becoming a key accounting unit for human wealth and a foundational asset in cyberspace, potentially surpassing gold's status. However, prohibitive policies objectively result in a lack of compliant channels for domestic trading and investment, causing domestic funds to flow out through offshore trading platforms and over-the-counter transactions via gray channels, which can easily lead to fraud, currency exchange, money laundering, and capital flight risks.

The deep integration of the global crypto asset system with the traditional financial system is becoming an inevitable trend, independent of the will of specific individuals, institutions, or countries. In the long run, the limitations and negative effects of prohibitive regulation are becoming increasingly prominent. Legalizing crypto asset trading and implementing classified regulation can help achieve transparent regulation of domestic funds, protect the rights and interests of financial consumers, and ensure tax compliance for crypto asset investments, increasing fiscal revenue and enhancing financial regulatory capacity in practice. China can re-examine the economic functions and strategic value of crypto assets, exploring a shift from "comprehensive prohibition" to "moderate openness," bringing crypto assets into a compliant development track. Rather than watching the enormous investment demand and the risks that arise underground, regulatory agencies should guide it into a legal framework while ensuring financial security, monitor the flow of funds in real-time, prevent illegal financial activities, and enhance investor suitability standards.

(2) Theoretical Reconsideration of Prohibitive Regulatory Policies

The comprehensive prohibition of the crypto asset-related industry is neither realistically feasible nor aligned with considerations of interests and the principle of proportionality. Financial regulation is a public law act that intervenes in private rights and should also be constrained by the public law principle of proportionality—principles of legitimate purpose, appropriateness, necessity, and balance. In terms of regulatory objectives, crypto assets represented by stablecoins exhibit an expansion of legitimate purpose at the level of monetary sovereignty, making prohibitive regulation inadequate to address corresponding challenges of currency substitution. Regarding the appropriateness and necessity of means, regulatory authorities can adopt alternative measures that infringe less on private rights, such as restricting market access, while the structural conflict between prohibitive regulation and the global development of crypto assets is becoming increasingly evident. In terms of the principle of balance, prohibitive regulation may suppress inclusive finance and financial innovation, leading to excessive intervention by public authority institutions in private interests under the guise of public interest, making it difficult to achieve a balance between the infringement of private rights and the realization of public interest. As China's financial market continues to open up, the connection between domestic and international financial institutions is deepening, indicating that existing policies still have room for re-examination.

Classic theories and practices of financial regulation indicate that safety, efficiency, and fairness are core values that cannot be neglected. In determining the value objectives of financial regulation, Professor Xing Huqiang proposed the "three-legged theorem" solution, positioning "financial safety," "financial efficiency," and "consumer protection" as the three legs of financial law legislation, financial regulatory objectives, and financial system reform. Professor Feng Guo further developed the "three-legged theorem," expanding "consumer protection" to "financial fairness," forming a game model of mutual checks and balances based on "financial safety," "financial efficiency," and "financial fairness." However, balancing these diverse policy objectives is particularly challenging in the field of crypto assets in China. Overall, the risk control strategy that overly relies on administrative bans stems from an excessive demand for financial safety, severely neglecting financial efficiency, especially the protection of financial consumer rights, leading to explicit conflicts among multiple regulatory values.

Prohibitive regulation arises from the perception that crypto assets and decentralized finance have little practical value, leading to numerous crimes such as money laundering, pyramid schemes, and fraud, and posing significant risks to the financial system and consumer rights. This perspective overlooks the positive functions and values of crypto assets and their ecosystems. From a positive standpoint, private crypto assets represented by Bitcoin enable peer-to-peer (P2P) transactions, allowing payment, settlement, and clearing to occur in one step. The significant advantages of these mainstream private crypto assets lie in streamlining intermediary processes, reducing costs, enhancing efficiency, and ensuring transparency, making them important tools for hedging against the long-term depreciation risk of fiat currencies. Stablecoins are gradually becoming one of the mainstream revolutionary tools for cross-border payment and settlement. Compared to traditional financial payment systems, stablecoins can achieve instant clearing between any global nodes, offering advantages such as point-to-point transactions, 24/7 availability, near real-time transactions, and low, transparent fees. Decentralized finance is emerging as an efficient tool for investment and financing, attempting to replicate traditional financial services and business models in a decentralized manner within the crypto world. This on-chain lending model features permissionless access, global openness, automated execution, and transparent collateral ratios. Crypto assets and their related ecosystems are not merely tools for illegal activities; they also possess characteristics of inclusive finance and promote the value of inclusive growth.

We believe that financial safety, financial efficiency, and the protection of financial consumer rights are not oppositional; to a large extent, they are unified and mutually reinforcing. A lack of efficiency, cost insensitivity, and stifling of innovation in financial safety is fragile. When financial regulatory policies can promote innovation while effectively protecting the rights of financial consumers, they can solidify financial safety. The U.S. adopts an inclusive policy on one hand, actively embracing innovation in crypto assets, using stablecoins to strengthen the international dominance of the dollar, and positioning Bitcoin as a strategic reserve to make the U.S. the world capital of crypto assets. On the other hand, regulatory bodies such as the U.S. Securities and Exchange Commission (SEC) have frequently targeted blockchain financial companies like Ripple in recent years under the guise of protecting financial consumer rights, while also strengthening the protection of financial consumer rights through recent legislation, effectively promoting the compliant development of crypto asset institutions and safeguarding national financial security. However, under prohibitive policies, the regulatory norms and judicial rulings in the crypto asset field often reflect a trend of "public interest superiority," exacerbating the awkward situation where the legal protection of the rights of legitimate crypto asset holders cannot be matched by sufficient judicial relief. The current paradigm of financial regulation is undergoing a structural shift from mere regulatory constraints to innovation empowerment. The relationship between financial innovation and financial regulation has transcended the traditional binary opposition model; the core regulatory goal is no longer solely regulation but actively aligning with the trends of financial innovation development, providing substantial momentum for financial innovation through financial regulation. Based on this, in advancing the regulatory framework for crypto assets, it is essential to reintroduce the long-missing value dimensions of "financial efficiency" and "consumer rights protection" into policy-making considerations, ensuring a positive interaction among these value objectives. China can re-examine the functional value of the crypto asset ecosystem for inclusive finance and financial development, particularly considering the strategic value of mainstream crypto assets in international financial and political competition, and thus accurately define them at the legal level.

In terms of crypto asset development strategy, China can seek a prudent balance between promoting innovation and preventing risks, constructing a dynamic system based on risk assessment. Researchers have summarized three action routes for regulatory authorities in response to risks related to crypto assets: Ban, Contain, and Regulate. Except for the complete prohibition of crypto asset activities, these options are not mutually exclusive and can be used in combination. China can explore more adaptive regulatory paths while firmly adhering to the bottom line of risk prevention, achieving a balance between regulation and development. In choosing regulatory strategies, China can evolve from "comprehensive prohibition" to "moderate openness," employing a combination of containment and regulatory strategies to bring crypto assets into a compliant regulatory framework, gradually transitioning from solely developing "central bank digital currency" to a model of "coordinated development of central bank digital currency and crypto assets."

(3) Core Dimensions of Regulatory Policy Adjustment

1. The Idea of Classified Regulation

China's regulatory policies have long failed to effectively distinguish between types of crypto assets, simply adopting the vague definition of "virtual currency" and a "one-size-fits-all" prohibition policy. The "Notice on Further Preventing and Dealing with Risks of Virtual Currency Trading Speculation" points out that "virtual currencies" such as Bitcoin, Ethereum, and Tether possess key characteristics such as not being issued by monetary authorities, using encryption technology and distributed ledgers or similar technologies, and existing in digital form, thus lacking legal tender status. From the normative text, it can be seen that "virtual currency" under China's financial regulatory perspective is a complex and vast collective, encompassing not only "air coins" that lack any technical support and have become tools for fraud but also mainstream native tokens like Bitcoin and Ethereum, as well as types backed by real assets such as stablecoins pegged to the U.S. dollar, which is inconsistent with the characterization of the latter as "virtual." Different types of crypto assets have different operational mechanisms and risk profiles, necessitating differentiated treatment by regulators.

The Financial Stability Board's principles of "same business, same risk, same regulation," "flexibility principle," and "technology neutrality" guide the consensus on classified regulation of global crypto assets. Developed economies adopt a classification regulatory approach based on asset characteristics and risk levels, implementing differentiated regulation according to the economic functions and risk characteristics of crypto assets. Therefore, China needs to identify the essential attributes of emerging businesses through functional regulation and strive to build a policy framework for classified regulation within the existing system. In terms of classification models, China can draw on the functional regulatory ideas and enforcement practices of countries such as the EU, Switzerland, and the U.S., determining the applicability of existing financial regulatory norms through functional regulation. To reduce the risks of classification errors and regulatory arbitrage, the EU has issued guidelines on the classification of crypto assets that meet the definitions of securities or financial instruments. In January 2025, the U.S. Securities and Exchange Commission announced the establishment of a crypto asset working group, led by Hester Peirce, known as "Crypto Mom." In February 2025, Hester Peirce stated in a public announcement that the crypto asset working group would work in several areas, such as clarifying whether different types of cryptocurrencies fall under securities; providing legal certainty for specific crypto projects through no-action letters; exploring temporary exemptions for token issuance and simplifying registration pathways; providing compliant crypto custody solutions for investment advisors and brokers; clarifying whether crypto lending and staking are subject to securities law jurisdiction and formulating relevant rules. China can learn from these experiences and consider feasible strategies for incorporating "security tokens" into the regulatory system, bringing more clarity to the regulatory framework for crypto assets while maintaining support for innovation. The securities regulatory authority can issue standalone regulatory regulations without breaching higher laws, adhering to the functional regulatory concept of "substance over form," placing related activities under the regulation of securities law, and flexibly applying securities legal systems for regulation. For crypto assets that meet the standards of classified regulatory rules, especially mainstream crypto assets with strong social consensus and typical decentralized characteristics on a global scale, their property rights attributes should be recognized, and a more rational judicial recognition and standardized, legalized process for judicial disposal can be established through judicial interpretations or guiding cases from the Supreme People's Court.

2. Focusing Regulation on Crypto Asset Service Providers

Globally, crypto asset trading platforms possess significant power to establish trading rules, manage trading behaviors, and resolve trading disputes due to their mastery of coding technology and service agreements with platform users, making them a crucial focus for public authority regulation. In the digital economy era, effective information collection lays a favorable foundation for the development of financial innovation and inclusive finance, helping to promote the robust operation of the entire financial system in a new technological environment. The information disclosure system remains a core mechanism for safeguarding the rights of financial consumers. Regulating and supervising crypto asset service providers is a vital foundation for data collection, effective capital flow management, and fiscal and tax policies. From international experience, countries that implement regulation on crypto assets generally focus on crypto asset service providers and set compliance obligations. Due to previous exit and prohibition policies, there are no legal crypto asset service providers within China, resulting in a lack of effective regulatory "levers." China can orderly guide crypto asset activities and service providers into the regulatory purview, with financial regulatory authorities exploring regulatory cooperation with issuing institutions or centralized exchanges.

Overall, developed economies such as the EU, the U.S., and Hong Kong generally set market access requirements for crypto asset service providers while emphasizing customer asset protection, anti-money laundering compliance, and prevention of market manipulation, particularly focusing on centralized exchanges. For example, MiCA classifies any individual or entity providing crypto asset services for commercial purposes as a crypto asset service provider, requiring them to register an office in one of the EU member states and apply for authorization from the competent authority of the member state where their office is located, implementing differentiated regulatory requirements for crypto asset service providers based on their different business scopes. In line with international practices, China's financial regulation can focus on constructing a rights and responsibilities system for crypto asset service providers, clarifying the content of platform responsibilities, such as establishing a registration and licensing system for crypto asset exchanges, brokers, and clearinghouses, implementing unified regulation of platform operations, guiding them to formulate reasonable trading rules and risk management plans within the scope of their licenses, and strictly regulating the operational behaviors of platforms.

In terms of regulatory content, to address the risks of money laundering and terrorist financing that are most likely to arise from crypto assets, international organizations represented by the Financial Action Task Force (FATF) have gradually constructed a regulatory framework for crypto assets that places crypto asset service providers as the obligated entities and establishes the "travel rule" as an important system. Countries such as the EU, the U.S., and Singapore have promoted anti-money laundering regulation for crypto assets through institutional unification and strengthened law enforcement, making progress in implementing the "travel rule" and gradually establishing a penetration-based compliance system centered on crypto asset service providers. China may consider adding provisions for crypto asset service providers in the relevant implementation regulations or judicial interpretations of the Anti-Money Laundering Law, and establish minimum entry thresholds, internal control requirements for anti-money laundering, reporting obligations for tradable assets, and customer identity verification based on service types such as exchanges, custodians, smart contracts, and cross-chain bridges. In addition, Chinese regulatory authorities should actively respond to the challenges of cross-border law enforcement and judicial jurisdiction brought about by the global nature of crypto asset trading. China can explore strengthening the extraterritorial applicability mechanism of the Anti-Money Laundering Law based on the "effect jurisdiction" principle established in Article 12 of the law, regulating foreign crypto asset service platforms that provide services to Chinese entities, and moderately expanding the jurisdiction of law enforcement and judicial authorities over foreign platforms.

3. Strategic Reserves and Management of Crypto Assets

In the current wave of the digital economy sweeping the globe, the international monetary system is undergoing unprecedented changes. Dollar stablecoins, leveraging their first-mover advantage and technological innovation, have become the vehicle for the technological upgrade and extension of the dollar system in the digital age. As a digital form of currency tool, stablecoins anchor dollar assets and rely on blockchain technology to achieve rapid global circulation, deeply embedding themselves in cross-border payments, crypto asset trading, and investments in emerging fields, further consolidating the dollar's dominance in the international monetary system. The U.S., with its inclusive and technologically dominant position in the crypto asset market, has incorporated Bitcoin into its strategic reserves and constructed related trading systems, enhancing its dominance over the new international asset reserve system, while the stablecoin legislation will further strengthen the international status of the dollar. Against this backdrop, China can respond by developing offshore RMB stablecoins and establishing a reserve and management system for crypto assets.

First, eliminate institutional barriers and promote the development of offshore RMB stablecoins. Fiat-collateralized stablecoins extend the influence of mainstream fiat currencies in the global digital space and extend the sovereign power of nations in the Web3 world, making it a new battleground for international monetary and financial competition. Statistical data indicates that currently, over 95% of stablecoins are issued based on the dollar and its assets, which is significantly higher than the dollar's share of about 50% in global payments and about 58% in global official foreign exchange reserves. It can be said that the stablecoins widely circulating in the market are essentially tokens of digital dollars, reinforcing the dollar's core position in cross-border payments and crypto asset trading. Economists emphasize the need to explore RMB stablecoins to enhance the RMB's position in the global financial landscape and hedge against the impact of the dollar-dominated digital financial system. However, on an institutional basis, issuing and using RMB stablecoins domestically faces legitimacy issues. The "Notice on Further Preventing and Dealing with Risks of Virtual Currency Trading Speculation" clearly categorizes virtual currency trading (including stablecoins) as illegal financial activities and prohibits any institution from providing related services, while also categorizing services provided by foreign exchanges to domestic residents as illegal. Therefore, China will need to adjust the aforementioned regulations in the future to eliminate the "legitimacy" institutional barriers for the issuance and use of RMB stablecoins both domestically and abroad. On this basis, China can issue stablecoins based on offshore RMB to attract more market-oriented institutions to use them for cross-border payments and applications in commercial ecosystems, thereby enhancing the international status of the RMB.

Second, allow pilot explorations under regulation. Hong Kong is the largest offshore RMB business hub globally and has the institutional environment and market foundation to launch pilot stablecoins pegged to the RMB. As an international financial center, Hong Kong has unique advantages for developing offshore RMB stablecoins. From the perspective of financial infrastructure, Hong Kong has a mature legal system, an advanced financial regulatory framework, and a rich reserve of financial talent. China can leverage Hong Kong's financial center status and existing institutional foundation to develop offshore RMB stablecoins and actively participate in the stablecoin market competition. Additionally, the Hong Kong Monetary Authority and the Hong Kong Securities and Futures Commission can create a friendly atmosphere for cryptocurrency innovation and investment by promoting more supportive policies, attracting more enterprises and investors, and enhancing Hong Kong's influence in the global cryptocurrency market. The central government encourages and supports Hong Kong's development in crypto asset investment, trading, and Web3.0 technology innovation, aiming to make Hong Kong the best experimental field for the development of crypto asset trading and RMB stablecoins, fully summarizing its legislative and practical experiences to provide beneficial references for the moderate opening of the digital financial market in mainland China. After the legalization of mainstream crypto asset trading in Hong Kong, the reality is that mainland judicial authorities will liquidate seized crypto assets through licensed exchanges in Hong Kong. According to current mainland regulatory policies, the compliance of this liquidation pathway remains highly controversial. If the mainland continues to adhere to prohibitive policies, the regulatory differences between these two jurisdictions regarding the same financial business will lead to numerous practical legal issues and disputes, such as significant divergences in the legal attributes of crypto assets, protection of holders' rights, and property inheritance, which may induce the outflow of mainland assets through crypto assets, necessitating a certain degree of policy coordination.

Third, explore the reserve and management system for crypto assets. Bitcoin, as a mainstream crypto asset, is gradually recognized as "digital gold" due to its scarcity and security, and countries that establish strategic Bitcoin reserves first will gain a strategic first-mover advantage. Globally, crypto assets represented by Bitcoin are gradually shedding their early labels as "money laundering tools" and "speculative tools," and their new asset class attributes are increasingly recognized by mainstream markets. Bitcoin is gradually transitioning from a "speculative asset" to a "strategic reserve asset," and its position in the global asset reserve system deserves high attention from China. Based on Bitcoin's strategic reserves, the U.S. may further enhance its dominance over the new international asset reserve system, and China needs to prepare adequately in this regard. According to incomplete statistics, the stock of Bitcoin confiscated through judicial means in China exceeds 200,000 coins, but due to the negative evaluation of crypto assets as "illegal financial activities" in regulatory norms, these assets face long-term legal identity dilemmas and institutional barriers to disposal and liquidation. It is necessary to accelerate reaching a consensus on recognizing the legal attributes of mainstream crypto assets and establishing a unified disposal procedure to regulate the disposal of crypto assets. China can also gradually relax the participation of qualified investors from the mainland in crypto asset trading in Hong Kong (such as Bitcoin ETFs), achieving a partial realization of "private Bitcoin strategic reserves" without significant policy adjustments. Furthermore, China can refer to the U.S. model of establishing a "strategic Bitcoin reserve," incorporating it into the foreign exchange management framework to hedge against the depreciation risk of dollar assets, thereby enhancing control over crypto assets and the bargaining chips in global financial competition. From a management perspective, a unified and centralized management by the central government is more suitable, as centralized management can avoid the dispersion, arbitrariness, and potential interests transfer of local disposals, and can leverage national-level resources and expertise to achieve effective management and value preservation of crypto assets through scientific and reasonable asset allocation and market operations.

V. Conclusion

The field of crypto assets has become a new battleground for future international financial competition, playing an important role in promoting innovation and economic development, as well as enhancing international leadership. The integration of the crypto asset ecosystem with the traditional financial system has become a major trend. Global crypto asset regulation is shifting from previously allowing "barbaric growth" to the current "rule reconstruction." In this regard, China, while adhering to the bottom line of financial security, should timely adjust prohibitive regulations, pay attention to the protection of the rights of legitimate holders of crypto assets, and avoid missing the revolutionary opportunities brought by new financial developments due to policy lag. In the short term, China can encourage the Hong Kong Special Administrative Region government to further deepen, improve, and refine its efforts in crypto asset trading, investment, and financial innovation, assess risks, and summarize replicable experiences to explore the possibility of moderately opening up crypto asset trading and financial innovation in the mainland. In the medium to long term, China may consider moderately adjusting the comprehensive prohibition regulations, balancing financial security, financial efficiency, and the protection of financial consumer rights, implementing classified regulation of crypto assets, cultivating and guiding compliant crypto asset service providers domestically, and incorporating mainstream crypto asset reserves into new economic development strategies. In summary, during this critical period of building a strong financial nation, crypto assets are also one of the strategic pivot points for reshaping currency competitiveness and upgrading financial markets. A "strong international financial center" must include the ability to price crypto assets in fiat currencies, and a "strong currency" must encompass crypto technology carriers. China's development of crypto assets can consider the core connotation of "financial power," moving towards an inclusive and prudent regulatory new era in the field of crypto assets, empowering the internationalization of sovereign currency with crypto technology, preventing potential risks of crypto assets through regulatory innovation, and enhancing the competitiveness of financial markets through phased institutional openings, thereby increasing China's discourse power in rule-making in the field of crypto assets and securing a high ground in the new round of global digital financial competition, achieving a leap from a financial power to a strong financial nation.

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