‘Accomplices’ in espionage: Beijing’s stance on cryptocurrencies hardens

China's Ministry of State Security (MSS) issued a stern warning on Monday about the dangers of cryptocurrencies, emphasizing their role in crime and stressing that transactions are not anonymous. According to the agency, virtual currencies facilitate money laundering activities and cyberattacks and serve as "accomplices" in espionage.

The MSS also highlighted that overseas intelligence agencies attempt to dispel concerns of potential spy recruits by claiming crypto transactions are difficult to verify. The agency described the anonymity of crypto transactions as a "false proposition" and an "illusion", stating that blockchains retain transaction records and exchanges between crypto and fiat currencies make real identities hard to hide.

Crypto is frequently used by "overseas anti-China hostile forces" for activities that disrupt financial order and harm national security, adding that crypto businesses are illegal in China. This latest warning contrasts with other recent alerts from Chinese authorities, which have focused on the sector's risks for national security and espionage.

China's finance and market regulators have launched wider crackdowns on the sector, including a joint notice by the People's Bank of China and seven other government agencies in February. The clampdown extended to tokenisation of real-world assets, emphasizing that speculative activity involving virtual currencies disrupts the economic and financial order and endangers people's property safety.

China's crypto policy has evolved significantly in recent years, after banning initial coin offerings and ordering the closure of exchanges in 2017, and banning bitcoin mining in 2021. While some economists questioned Beijing's stringent crypto ban, the government has not loosened its grip on domestic crypto activity, even as it permits Hong Kong to attract such businesses.

The MSS warning serves as a timely reminder that virtual currency trading remains banned in mainland China and would be regarded by governments worldwide as carrying significant risks, according to Andrew Fei, a partner at King & Wood in Hong Kong.