China’s historical stance on cryptocurrencies has been marked by repeated bans, yet recent developments suggest a potential softening of this position. In mid-2021, China’s crackdown on crypto mining prompted miners to relocate to other regions, leading to a confusing announcement that could significantly impact the crypto market, depending on interpretation.
During Bitcoin‘s all-time high in 2021, Elon Musk stirred controversy by highlighting the environmental impact of Bitcoin mining, shortly before China reimposed its ban on crypto mining. There were speculations that Musk’s actions facilitated the Chinese government’s crackdown, possibly to curry favor for his own business interests in China.
Despite the bans, China showed intentions to legitimize cryptocurrencies through Hong Kong last year. Major Chinese banks took steps in blockchain bond issuance, and tech giants like Tencent and Alibaba formed partnerships with crypto companies, suggesting government approval.
The Shanghai Taxation Bureau recently issued a document stating that personal income tax should be paid on the trading of “virtual currency” online. However, it remains unclear whether this refers to traditional online game currencies or cryptocurrencies like Bitcoin.
The term “virtual currency” encompasses both cryptocurrencies and in-game tokens, which are actively traded in secondary markets. The document clarifies that individuals are subject to personal income tax on profits from selling virtual currency, countering the misconception that such transactions are tax-exempt. The implications for tokens that serve as both cryptocurrency and in-game currency remain to be seen, with potential outcomes including legitimization, tax obligations, and market reactions for Play-to-Earn (P2E) tokens in China.