China Warns of Crypto Risks as Bitcoin Hits Record High

What is the alert about?

China’s state media has issued an alert on the risks of investing in cryptocurrencies, amid a surge in the price of bitcoin and other digital assets. The alert, published by the official Xinhua News Agency on Monday, March 4, 2024, warned that cryptocurrencies are “not real currencies” and have “no legal status” in China. It also cautioned that cryptocurrencies are “highly speculative” and “extremely volatile”, and that investors should be aware of the potential for fraud, hacking, and money laundering.

The alert came as bitcoin, the most popular cryptocurrency, hit a new all-time high of over $60,000 on Sunday, March 3, 2024, according to data from CoinMarketCap. Bitcoin has more than doubled in value since the start of the year, driven by increased demand from institutional and retail investors, as well as the adoption of bitcoin as a legal tender by El Salvador in September 2023.

How does China regulate cryptocurrencies?

China has been cracking down on cryptocurrencies since 2017, when it banned initial coin offerings (ICOs), a form of crowdfunding using digital tokens, and shut down domestic cryptocurrency exchanges. In 2019, China also banned cryptocurrency mining, the process of creating new coins using computer power, citing environmental and financial risks.

However, China has not completely banned the ownership or trading of cryptocurrencies, as long as they are done through offshore platforms or peer-to-peer networks. China also allows the development and research of blockchain, the underlying technology of cryptocurrencies, and has launched its own digital currency, the digital yuan, which is controlled by the central bank.

What are the implications of the alert?

The alert from China’s state media is not a new policy or regulation, but rather a reminder of the existing stance and risks of cryptocurrencies in China. It is unlikely to have a significant impact on the global cryptocurrency market, as China’s influence has diminished since the crackdown in 2017. However, it may deter some Chinese investors from entering or staying in the cryptocurrency space, especially those who are unfamiliar with the technology or the legal implications.

The alert also reflects China’s intention to maintain its monetary sovereignty and stability, as well as to prevent capital flight and illicit activities involving cryptocurrencies. China is keen to promote its digital yuan as an alternative to cryptocurrencies, as well as to other fiat currencies such as the US dollar. The digital yuan is expected to enhance China’s financial inclusion, efficiency, and surveillance, as well as to support its global ambitions.