The China state-owned media outlet, the Economic Daily, has signaled that the Chinese government may introduce even tighter regulations on cryptocurrencies and stablecoins due to the collapse of the Terra ecosystem.
In an article published May 31, the outlet detailed the collapse of TerraUSD (UST) and Luna (LUNA), explaining the workings of the algorithmic stablecoin. It used the so-called black swan event to praise the Chinese government’s decision to ban cryptocurrency.
“My country has been cracking down on virtual currency trading speculation and a large number of trading platforms,” reporter Li Hualin wrote before adding, “this has effectively blocked the transmission of this risk in China and avoided investment risks to the greatest extent possible.”
Hualin explained that “many other countries” are looking to regulate stablecoins following the Terra collapse and quoted Zhou Maohua, a researcher at the China Everbright Bank, to make a case for further restrictions within China:
“In the future, our country will also speed up the completion of regulatory shortcomings, and introduce targeted regulatory measures for the risk of stablecoins to further reduce the space for virtual currency speculation, illegal financial activities and related illegal and criminal activities, and better protect the safety of the people.”
After banning crypto exchanges back in 2017, the Chinese government has been toughening its stance on crypto again since mid-2021. Multiple agencies warned of the risk of investing in crypto, and a major crackdown on mining within the country took place.
Colin Wu, a China-focused cryptocurrency reporter, cleared up the misconception around the ban, telling Cointelegraph that the laws don’t allow institutions to provide crypto services “but they don’t prohibit ordinary people from using cryptocurrencies — there is no clear law to prohibit it,” adding:
“Institutions and enterprises are completely banned from trading or owning cryptocurrency in China, but individuals are free to own, buy and sell, and some local courts even consider them to be legally protected as virtual property.”
Earlier in May, a Shanghai court found that Bitcoin (BTC) is subject to property rights, laws and regulations as its value, scarcity and disposability meet the definition of virtual property according to the court.
As for how traders obtain crypto in the first place, Cointelegraph previously highlighted the rising use of VPNs among Chinese traders. Following the last round of restrictions, traders began increasingly using offshore exchanges or peer-to-peer (P2P) platforms for all of their activities.
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Wu says there is a “great possibility” that the Chinese government would impose even tighter restrictions or even complete bans on stablecoins to prohibit ownership, transfer, purchase and sale of the assets, “especially for Tether,” he added.
But, China may not stop at its own borders, as the Chinese Communist Party-owned outlet said that regulators in other countries should “strive to formulate global general rules” to tighten scrutiny on cross-border payments.
The Beijing regime outlet concluded that the move will “prevent virtual currency from becoming a tool for money laundering, fraud, and illegal fundraising.”