Regulatory offensive against Chinese cryptocurrencies: what institutions need to know

The intensification of government actions against Chinese cryptocurrency activities marks an important inflection point in the market. On November 28, a coalition of 13 state agencies coordinated a simultaneous crackdown, followed by a warning notice issued by seven industry entities on December 5, signaling unprecedented surveillance over virtual currency-related operations.

The Legal Risks of Real Asset Tokenization

The regulatory alert places special emphasis on the tokenization of real-world assets (RWA), which has emerged as a promising technological trend. However, legal experts point to a critical issue: in the absence of approved regulatory frameworks, these initiatives risk being classified as illegal fundraising or unauthorized securities issuance. This legal classification could expose institutions to severe penalties and criminal liabilities.

Authorities’ stance is clear: no regulatory approval has been granted to support asset tokenization schemes in mainland China. This gap between technological innovation and regulatory structure leaves entrepreneurs in an uncertain legal territory.

Restrictions on Financial Institutions

Licensed financial institutions face explicit bans on participating in, financing, or facilitating operations with Chinese cryptocurrencies and other virtual currencies. This institutional barrier significantly reduces access to capital for blockchain-based projects and forces operators to turn to unconventional channels.

Seeking Alternatives in Offshore Markets

Given the restrictive regulatory environment in mainland China, markets such as Hong Kong and Singapore are emerging as potential destinations for tokenization operations. These jurisdictions have more developed regulatory frameworks and greater openness to blockchain innovation. However, geographic relocation does not eliminate compliance challenges.

Chinese entities planning to transfer operations or assets abroad need to carefully navigate a complex web of regulatory requirements, including (CFT) regulations and foreign exchange compliance. Transferring resources to offshore jurisdictions involves detailed analysis of fund sources, legal structures, and ongoing transaction monitoring.

While alternative markets offer greater operational flexibility, the costs of compliance and reputational exposure remain significant considerations for any institution contemplating this strategy.