China tightens control over stablecoins, banning organizations from promoting them to prevent the risk of a massive investment influx.
While Beijing restricts stablecoins to avoid fraud and investment bubbles, Hong Kong, on the contrary, has established a clear legal corridor to develop a more stable cryptocurrency market.
MAIN CONTENT
China bans the promotion of stablecoins to control financial flows and risks.
Hong Kong implements strict stablecoin laws to build an international cryptocurrency hub.
The global stablecoin industry faces challenges from stringent regulatory policies and laws.
What is China doing to control stablecoins?
China orders securities firms, research institutes, and financial organizations to cease all promotional activities for stablecoins, including research reports, seminars, and other attention-grabbing forms.
The purpose of this order is to cool down the growing interest in stablecoins, prevent fraud risks, and uncontrolled investment booms domestically. Authorities are concerned that capital flows could suddenly change direction, leading to systemic financial risks.
Notably, despite strict bans, cryptocurrency trading through OTC channels in China remains active. Chainalysis recorded a trading volume of $75 billion through this channel in the first nine months of 2024.
"Chinese policymakers do not want to create excessive noise to avoid causing a crowding effect of investors rushing into a specific asset."
Christopher Wong, currency strategist at Oversea-Chinese Banking Corp., 2024
How does Hong Kong implement its stablecoin policy?
Unlike Beijing, Hong Kong implemented its new stablecoin law on August 1, 2024, becoming one of the first regions in the world to tightly regulate fiat-backed stablecoin issuers.
This is an important step in the plan to turn Hong Kong into a global digital asset hub. However, the law requires issuers to verify the identity of each stablecoin holder according to strict KYC regulations.
This has been evaluated by many experts as potentially stifling development and undermining the inherent privacy of stablecoins, while also making it difficult for cross-border businesses.
"This regulation is somewhat strict and unfavorable for user expansion, especially heavily impacting cross-border businesses."
Bo Tang, HKUST Financial Research Institute, 2024
How is global stablecoin management a worldwide battle?
Discussions about stablecoins are not only happening in China and Hong Kong but are also spreading globally due to influences from monetary policy, inflation, and banking systems.
Stablecoins are supported by advantages such as fast transactions, low fees, transparency, and are easier to trace for illegal activities compared to cash. According to 2024 data, criminal activities in cryptocurrency account for only 0.14% of the total blockchain transaction volume.
In the United States and the European Union, regulations such as the Genius Act and MiCA have been established to protect the market's safety while promoting innovation in this field.
How will China's control over stablecoins affect the market?
China maintains a cautious stance, not permitting widespread stablecoin development even though Hong Kong has taken the lead in establishing legislation.
Beijing's decision to tightly control stablecoins will be closely monitored, as it could impact its position and competitiveness in the global cryptocurrency market.
Frequently asked questions
Why does China ban stablecoins?
To prevent the risk of fraud and a sudden investment craze, protecting the domestic financial system.
How does Hong Kong regulate stablecoins?
Implementing strict laws with KYC requirements to build a transparent and safe cryptocurrency center.
What benefits do stablecoins provide?
Fast, low transaction fees, easy to track, and more transparent than cash.
How is cryptocurrency trading in China currently?
Despite the ban, OTC trading continues robustly with large volumes.
What are the global regulations on stablecoins?
Many countries are adopting new laws to ensure safety and promote technological innovation.
Source: https://tintucbitcoin.com/stablecoin-trung-quoc-bi-can-phat-trien/
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