China weigh pros and cons as crypto-linked corruption, fraud enter headline

China might not warm up to digital currencies, especially after the discovery and seizure of crypto holdings from corruption and fraud cases. 

According to the South China Morning Post, a debate ensued in the country following two high-profile investigations on a former senior central bank official and an alleged scam network operator accused of leading one of the largest Bitcoin-linked fraud schemes ever uncovered. 

The extradition of alleged crypto scam billionaire Chen Zhi has dominated chatter on Chinese social media and state media outlets. Chen, the founder of Prince Holding Group, was arrested in Cambodia on January 6 at the request of Chinese authorities. 

China talks Chen Zhi, arrest makes citizens woeful of crypto

Cambodian officials detained three Chinese nationals, including Chen, before transferring them to China, according to the Cambodia China Times. Last year, the United States prosecutors seized about $15 billion in Bitcoin that supposedly belonged to Chen, Cryptopolitan reported. 

According to Chinese investigators, Chen was part of a large-scale crypto fraud operation, though full details of the charges have not yet been publicly disclosed.

Last Wednesday, state broadcaster China Central Television aired a documentary on how authorities tracked down bribes paid in cryptos to Yao Qian. 

Yao previously headed the People’s Bank of China team responsible for developing the digital yuan, Beijing’s flagship central bank digital currency project. This has led the public to question if blockchain technology is truly anonymous and secure, and how transparent transaction records expose illicit financial activity. 

On China’s RedNote social media platform, users are having a back-and-forth discussion between strong encryption protecting private keys and the fact that all Bitcoin transactions are visible on public ledgers.

Strict bans on the mainland, openness in Hong Kong 

Digital asset transactions have been banned for years in mainland China, as authorities seek to control capital flows and reduce financial risks. The central bank has consistently warned that virtual currencies lack legal tender status and cannot function as money within China’s markets.

In October, the People’s Bank of China reiterated its commitment to cracking down on virtual money, even as some market participants called for the introduction of yuan-denominated stablecoins. 

A meeting convened by the People’s Bank of China last November brought together 13 government agencies to coordinate enforcement actions against illegal digital currency activities. Foreign-issued stablecoins were flagged as posing risks related to money laundering, fraud, and illegal cross-border fund transfers.

But in its special administrative jurisdiction, Hong Kong, crypto businesses have licenses and regulatory clarity to freely operate. Some industry observers say Hong Kong is a “litmus test” for how cryptocurrencies would fare in the mainland, although the sentiment from the government says this won’t come any time soon.

Genevieve Donnellon-May, a Vasey Fellow at the Pacific Forum, believes the arrest of Chen is “a successful crackdown on criminal misuse of crypto,” and should not be deemed a flaw in Bitcoin itself.

“Such actions may actually help strengthen longer-term confidence by curbing scams and illicit flows that harm the asset’s reputation,” she denoted.

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