Chinese prosecutors propose crackdown on ‘pseudo-innovation’ in NFT market

The Supreme People’s Procuratorate of the People’s Republic of China has put forward a proposal to combat what they call “pseudo-innovation” in the non-fungible token market.

In an article published on May 15, three authors representing the national agency responsible for legal prosecution discussed the evolving landscape of the NFT market. They mainly focused on the issue of the “securitization” of NFTs, which refers to the shared ownership of one digital asset by multiple users.

The authors argue that this shared ownership no longer aligns with the core principles of non-reproducibility, indivisibility, and uniqueness that define NFTs.

Among the risks highlighted by the prosecutors is the “inflation of prices” within the NFT market, which they attribute to marketing tactics such as airdrops, blind boxes and limited sales. The authors suggest that inflated prices lack “artistic beauty” and a “reasonable pricing mechanism.”

Moreover, they caution that marketing models like rewards and dynamic rights and interests can quickly transform into illegal pyramid schemes.

To address these risks, the prosecutors propose a comprehensive approach that includes cracking down on criminal activities, equal emphasis on punishment and governance, and investment in risk research and law popularization.

The article indicates that the national prosecutors aim to differentiate between “true innovation” and “pseudo-innovation” while safeguarding the former. This proposal further emphasizes China’s overall stance against anything crypto-related.

Persistent against cryptocurrency

China’s anti-crypto stance has remained unchanged despite recent developments in Hong Kong. CPIC Investment Management CEO Chenggang Zhou emphasized that Hong Kong does not change mainland China’s regulatory approach or the government’s attitude towards crypto.

Although some Chinese state-affiliated banks have started opening bank accounts for crypto clients in Hong Kong, Zhou clarified that CPIC Investment Management operates as a Hong Kong entity regulated by local authorities.

Zhou further explained that CPIC Investment Management’s involvement in crypto is solely due to the permissibility of Hong Kong regulations. He said that the company’s actions do not indicate any shift in China’s crypto policies or a change of policy by the government.

China has maintained its anti-crypto stance for a significant period, with a complete ban on crypto implemented in September 2021. However, Zhou does not anticipate any immediate changes in the government’s approach to crypto regulations.

Experts echo Zhou’s sentiments, saying that China continues to be anti-crypto while seeking to attract foreign currency deposits through crypto accounts.

Lesperance & Associates founder David Lesperance highlighted that the Chinese government aimed to increase foreign currency reserves through fiat-to-crypto transactions or holding cryptocurrencies.

However, Lesperance pointed out that the crypto market in mainland China remains effectively closed. This raises concerns about enforcement measures to prevent Chinese citizens from using Hong Kong exchanges to transfer funds out of the country.

Zhou also mentioned the strict Know Your Customer policies implemented by crypto exchanges in Hong Kong, which aim to restrict mainland Chinese investors from trading on their platforms. He expected that licensed crypto exchanges in Hong Kong would not accept onshore mainland citizens as traders.

On the other hand, Hong Kong continues its support of cryptocurrency. A Hong Kong court has recently ruled that cryptocurrencies are considered property, aligning the region with other jurisdictions that recognize digital assets as such. The ruling came in a case involving the defunct cryptocurrency exchange Gatecoin.

Despite China’s ban on crypto-related activities, state-affiliated banks are seizing the opportunity to establish partnerships and onboard regulated crypto firms in Hong Kong as the region aims to become a global crypto hub.