Summary
- China continues to ban cryptocurrency activity on the mainland, but is using Hong Kong as a regulatory sandbox for crypto’s inclusion into financial services.
- The country’s leadership has long been keen to counter the dominance of the US dollar, and it has been suggested it is using financial services, specifically the digital yuan, to promote yuan internationalization.
- One area where China has made notable progress – reflected in its elevation as a national priority and in a large number of patents lodged by the country – is blockchain development.
- For more stories about crypto adoption worldwide, visit our Crypto in Action pages.
Crypto usage in China … and Hong Kong
It is not illegal to own cryptocurrencies in mainland China, but domestic exchange platforms and initial coin offerings (ICOs) are banned. Despite this, estimates suggest the number of cryptocurrency holders in China is 78 million, or roughly 5.5% of the population. The situation doesn’t appear to have affected sentiment towards cryptocurrencies, which remains positive.
There is no specific legislation governing cryptocurrencies for mainland China, but the authorities have released various circulars since 2013, which have variously banned mining and trading, and curtailed other activities.
Although crypto development has been curtailed on the mainland, the authorities have used Hong Kong as a regulatory sandbox for digital assets since 2022. As a result, a distinct divide has emerged; all activity related to the digital currency (eCNY) is taking place in mainland China, while all crypto developments occur in Hong Kong.
Reflecting this, legislation has been enacted governing Virtual Asset Service Providers (VASP) and Virtual Assets Trading Platforms (VATP), (both in 2023) and stablecoins (2025) in Hong Kong, making it a crypto regulatory powerhouse both regionally and globally. Attention has now turned to digital asset dealing and custody regimes, with Hong Kong’s authorities launching a public consultation in June 2025.
China’s Strategic Approach Towards Crypto
The attitude of the authorities on the mainland towards crypto can be neatly divided into two – pre-2017 and post-2017. Before 2017, China had the world’s largest cryptocurrency market. Evidence of this activity could be seen in its high bitcoin hashrate, with estimates of up to 75% of all the world’s bitcoin mining taking place in China, and a massive 80% of all bitcoin transactions taking place in the yuan fiat.
Then came a ban on domestic cryptocurrency transactions and ICOs, which overnight saw the market collapse. By 2018, just 1% of crypto trade involved the yuan.
Several factors prompted the ban, including:
- Lack of a centralized oversight of domestic cryptocurrency platforms,
- Use of cryptocurrency in cross-border payments,
- High price volatility, and
- The anonymous nature of crypto transactions.
The fact remains, however, that some of the world’s largest exchanges are Chinese in origin – including Binance, Huobi, and KuCoin – while the popular stablecoin, Tether, originated in Hong Kong.
Although the authorities maintain a strict approach towards cryptocurrencies, they have shown great interest in blockchain technology. China’s leadership regards blockchain as part of the foundational infrastructure for the digital age, with interest premised on the expectation that blockchain will reshape industries and sectors.
Notably, China has the world’s most blockchain patent applications, underlining the authorities’ interest in exploring its use.
The Creation of a Digital Yuan
The authorities view financial innovation as a possible means to internationalize the yuan. Reflecting this, another area in which the authorities have been making notable progress is the development of a digital yuan. Piloted in 2020, the People’s Bank of China (central bank, PBoC) continues to promote ownership and usage. WeChat, one of the country’s two large-scale mobile payments systems, supported the eCYN for more than a year, but the ubiquitous nature of platforms like WeChat along with their far greater functionality has been a factor in limiting the digital yuan’s pilot to date.
The authorities are also believed to be considering allowing the use of yuan-backed stablecoins to boost adoption. In this respect, the move to enact stablecoin legislation in Hong Kong in August 2025 is particularly interesting.
In September, the PBoC followed this up with the opening of a digital yuan hub in Shanghai in a move designed to encourage its use for cross-border payments and overseas markets. Marking the opening, central bank deputy governor, Lu Lei, was quoted as saying: “The evolution of monetary and payment systems in the digital era is a historical inevitability.”
Legislative Developments in Crypto and Blockchain
2013
In December, several authorities, including the central bank, issued the “Notice on Preventing Bitcoin Risks.” This prevented any financial or payment institution from trading bitcoin, and restricted insurance services from working with bitcoin-related businesses.
The circular revealed that the authorities did not regard bitcoin as legal tender but instead a virtual commodity. They came to this conclusion on the basis that bitcoin didn’t have the traditional characteristics of a fiat currency and hadn’t been issued by a monetary authority.
2017
In September, several authorities, including the central bank, issued the “Announcement to Prevent the Risk of Initial Coin Offerings.” This set stricter regulations on cryptocurrency activities, including banning trading platforms and ICOs.
2018
In January, the central bank issued the “Notice on Self-Inspection and Rectification of Providing Payment Services for Illegal Virtual Currency Transactions.” This prohibited payment institutions from providing virtual currency transaction services.
In August, several authorities warned against illegal fundraising activities using cryptocurrency and blockchain.
2019
In July, a court in Hangzhou ruled that bitcoin was a commodity but not legal currency. This was viewed as adding to the legal sense that cryptocurrency is an asset, following a declaration by Shenzhen Arbitration Commission the previous year, that “the asset [bitcoin] should be protected in accordance with law”.
President Xi Jinping called on the country to embrace blockchain technology, promoting its development to become a national priority.
2020
In January, cryptography laws came into effect, working in tandem with the country’s cybersecurity legislation.
In May, the Civil Code of the People’s Republic of China was expanded to include inheritance of virtual assets.
In October, the central bank issued a draft law providing legal status to the digital yuan.
The Beijing Arbitration Commission (BAC) issued a report clarifying the authorities’ position on cryptocurrency, namely that it was recognized as a virtual commodity even if token funding and trading were prohibited.
The authorities also released a report detailing how blockchain could be applied to government services.
2021
In September, the authorities released the “Circular on Further Preventing and Resolving the Risks of Virtual Currency Trading and Speculation,” which aimed to strengthen the country’s approach to managing virtual currency risks.
The same month, the National Development and Reform Commission released the “Circular on Regulating Virtual Currency Mining Activities.” This banned new mining and accelerated the withdrawal of existing projects. This took more than half of the world’s miners offline.
2022
In April, three of the country’s institutions issued the “Initiative to Address NFT-Related Financial Risks.”
2023
In June, the Bank of China issued $28 million of debt on Ethereum through its Hong Kong arm. The move was seen as a way to leverage public blockchain networks while retaining control over domestic financial activity.
The Financial Times reported that Hong Kong’s regulators were pressing large banks to provide services to crypto exchanges.
2025
In August, Hong Kong’s stablecoin legislation came into effect.
Outlook
China’s priority is ensuring stability and control of the situation. A clear example is the authorities’ attitude towards asset tokenization, which is considered a national priority. The goal is to ensure tokenized local assets settle in regulated, tokenized versions of money, not via unapproved systems. Hong Kong has codified how tokens that represent securities and other SFC-authorized products should be structured and sold, while mainland China has yet to issue guidelines for tokenized financial instruments. As a result of a growing mismatch, China’s securities regulator has asked mainland brokerages to pause some real-world asset (RWA) tokenization activities in Hong Kong. Once this pause is lifted, observers expect a focus on lower-risk RWAs.
Hong Kong’s stablecoin legislation has been described as a “blueprint,” as it is regarded as ahead of most Asian jurisdictions; notably, it allows firms to obtain a stablecoin license from the monetary authority under stringent requirements. Reflecting the wider situation, the Chinese authorities are closely monitoring the US’s burgeoning crypto regime, particularly plans to roll out the GENIUS Act.
