China central bank's crypto warning hits related Hong Kong shares
PBOC flags stablecoin risks, vows to continue clampdown on virtual assets
A visitor poses for photos during the Bitcoin Asia conference in Hong Kong in August. The city has been keen to develop the crypto industry, while Beijing is more cautious.
HONG KONG -- A stern warning from the People's Bank of China about cryptocurrencies jolted related shares in Hong Kong on Monday, casting a shadow on the city's ambitions to develop a digital currency hub.
The PBOC vowed to continue a crackdown on all virtual assets following a 2021 ban. But for the first time, it specifically mentioned stablecoins, a form of cryptocurrency considered less volatile thanks to backing by a fiat currency or assets like government securities.
"Virtual currency speculation has resurfaced, and related illegal and criminal activities have occurred from time to time, posing new challenges and new situations for risk prevention and control," according to central bank meeting minutes published on Saturday. "Stablecoins are a form of virtual currency, and currently cannot effectively meet requirements for customer identification and anti-money laundering."
The readout warned of risks of fundraising fraud and illegal cross-border transfers, stressing that virtual currency-related business activities constitute illegal financial activities.
Wary investors on Monday dumped shares of cryptocurrency exchanges and other industry players. Boyaa Interactive, a game developer that holds over 4,000 bitcoins, fell as much as 9% during early trading hours. Cryptocurrency exchange OSL Group was down 6.5%. The broader Hang Seng index ended the morning session up 0.8%.
Beijing's first official position on stablecoins echoes remarks by former PBOC Gov. Zhou Xiaochuan, who had voiced skepticism and said they pose risks to financial stability. But in contrast, Hong Kong has been actively pushing for stablecoins to be issued by licensed entities.
The mainland's prohibitive stance on digital assets appears to have been strengthened by a few high-profile cases of crypto asset seizures by Western governments from China-related alleged criminals.
Chinese-Cambodian businessman Chen Zhi was indicted by the U.S. for wire fraud and money laundering, over what are known as "pig-butchering scams," through his sprawling business empire Prince Group. China accused the U.S. government of carrying out a cyberattack that led to the theft of $13 billion worth of bitcoins in connection with the case.
Qian Zhimin was sentenced by a U.K. court last month after pleading guilty to running a crypto Ponzi scheme in China. The U.K. police seized over $6 billion worth of bitcoins from Qian, believed to be money from the victims.
In its statement, the PBOC said it will "continue to uphold the prohibitive policy on virtual currencies, and persistently crack down on illegal financial activities" in order to maintain economic and financial stability.
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