The National Internet Finance Association of China Issues Major Risk Warning After Three Years; Four Announcements in the Past Five Years Have Had Significant Market Impact

On December 5, the China Internet Finance Association, together with multiple departments, issued the latest risk alert regarding the prevention of illegal activities involving virtual currencies. This comes three years after the crypto risk alert in 2022. Looking back over the past five years, the Internet Finance Association has released four major announcements at key points of market speculation.

On April 13, 2022, it issued the “Initiative on Preventing Financial Risks Related to NFTs,” resolutely curbing the financialization and securitization of NFTs. It explicitly required that Bitcoin and other virtual currencies must not be used as pricing and settlement tools for NFT issuance and trading, and that financing support for NFT transactions must not be provided. This document led to a rapid cooling of the domestic “digital collectibles” market. Leading platforms such as Tencent Huanhe and Alibaba Jingtan subsequently tightened rules on transfers, and a large number of small and medium digital collectible platforms shut down due to liquidity shortages, resulting in the burst of the domestic NFT speculation bubble.

On May 18, 2021, a “Notice on Preventing Risks of Virtual Currency Trading Speculation” was issued, reiterating that virtual currency trading contracts are not protected by law. It required financial institutions and payment institutions not to conduct any business related to virtual currencies (such as account opening, registration, trading, clearing, or settlement). The day after the announcement (May 19, 2021), market panic spread, and Bitcoin’s price plunged over 30% in a single day, falling from above $43,000 to below $30,000, setting a record for the largest amount of liquidations across the entire network.

On April 2, 2020, a “Risk Alert on Participating in Speculation on Overseas Virtual Currency Trading Platforms” was issued, pointing out that overseas platforms are not protected by Chinese law and are often subject to market manipulation behaviors such as fabricating trading data and malicious downtime. This document marked increased regulatory attention to “overseas” exchanges. Subsequently, crackdowns on domestic virtual currency OTC (over-the-counter) fund channels were significantly strengthened, and the “card freezing wave” began to occur on a large scale.