Crypto 656

08/08 13:36

Why is China blocking the promotion of stablecoins

Why is China blocking the promotion of stablecoins despite strong market demand?

China has ordered brokerages, think tanks, and financial institutions to stop promoting stablecoins—publishing research reports, holding seminars, or engaging in hype.

These directives, issued in late July and early August, are intended to cool growing market interest in the sector. Regulators are concerned that stablecoins could be used for fraud in mainland China and that excessive enthusiasm could trigger a rush into high-risk investments.

More details below.

Demand remains strong despite the ban

Even with China's blanket ban on cryptocurrency trading, over-the-counter (OTC) trading remains active. Chainalysis estimates that $75 billion worth of digital assets changed hands through OTC channels in the first nine months of 2024.

"Chinese policymakers dislike excessive hype around certain topics to avoid a rush into specific asset classes," said Christopher Wong, a foreign exchange strategist at OCBC Bank.

Demand for cryptocurrencies may be strong, but Beijing wants to keep it under control.

 Hong Kong's Different Strategy

While mainland regulators are stepping up their oversight, Hong Kong is taking the opposite approach.

On August 1st, Hong Kong's new stablecoin law officially took effect, making it one of the first jurisdictions globally to regulate issuers of fiat-backed stablecoins.

This is a major step forward in Hong Kong's plan to become a global digital asset hub. However, the law comes with strict conditions. Issuers must verify the identity of every stablecoin holder—know-your-customer (KYC) requirements that many in the industry believe will harm stablecoin adoption and deprive it of its privacy advantages.

"It's a bit too restrictive and will hurt user acquisition," said Tang Bo of the Hong Kong University of Science and Technology's Institute of Finance, noting that cross-border businesses are likely to be hit hardest.

A Larger Global Struggle

The debate over stablecoins isn't just a story in mainland China and Hong Kong. Regulators around the world are weighing how these dollar-pegged assets will affect monetary policy, inflation, and the banking system.

Proponents say stablecoins are fast, cheap, transparent, and, unlike cash, easily traceable. By 2024, illicit cryptocurrency activity was projected to account for only 0.14% of blockchain transactions.  In places like the US and the EU, new regulations like the Genius Act and MiCA aim to improve the security of stablecoins while supporting innovation.

China Holds Its Ground

China's latest order suggests it's not ready to open up the stablecoin market. Hong Kong may be ahead, but Beijing will maintain tight control. Are they lagging behind? This choice will be closely watched.

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