The People’s Bank of China (PBoC) has emphasized the need for global collaboration to regulate the cryptocurrency sector in its latest financial stability report. The report dedicates a separate section to crypto assets, highlighting the importance of joint efforts by various countries for effective regulation.
Published on December 22, the report notes that the crypto market represents only 1% of the global financial system and has limited connections with the traditional finance sector. This is the first time the PBoC has allocated a specific section to crypto assets, urging governments worldwide to adopt a “same business, same risks, same rules” approach to avoid regulatory arbitrage.
The report references potential risks arising from regulatory arbitrage in cryptocurrency, including vulnerabilities to hacker attacks, market manipulation, and concerns regarding DeFi governance mechanisms.
The PBoC specifically mentions the collapse of the Terra ecosystem and the 2022 bankruptcy of the FTX exchange, emphasizing the need to manage legal regulatory fragmentation and eliminate supervision arbitrage. This call for joint regulation of the crypto sector comes several years after the Chinese government imposed a significant ban on the crypto industry.
Despite a comprehensive ban in 2021 on nearly all crypto transactions and mining activities, China has continued to be a significant hub for crypto mining. The PBoC had announced measures to combat the use of crypto assets and pushed for stronger inter-departmental coordination to block crypto activities in the country.
Some industry leaders, like Animoca’s co-founder Yat Siu, believe that Hong Kong’s rapid adoption of the crypto market could signal future regulatory moves in China. However, other local executives doubt any connection between China’s stance on crypto and the crypto-friendly moves in Hong Kong.