ince the issuance of the Notice on Further Preventing and Resolving the Risks of Virtual Currency Trading and Speculation issued by a number of regulators led by the People’s Bank of China (“PBOC”) in 2021 (“924 Notice”) - which outlined China’s ban on cryptocurrency activities - crypto players have exercised caution when engaging with mainland residents. The notice effectively banned crypto-related business activities within China, including token issuance, trading and financing. However, two recent developments have sparked discussions about the legal status of cryptocurrencies in China and the broader regulatory landscape. The first development stems from a ruling by the Songjiang District People’s Court of Shanghai (“Songjiang District Court”), which adjudicated a dispute over a service contract related to crypto issuance and financing. In a commentary on this case authored by Songjiang District Court, the court clarified that while crypto-related business activities remain prohibited in China, the mere ownership of crypto assets by individuals is not illegal. The court’s commentary emphasised that cryptocurrencies, as virtual commodities, possess legitimate property rights under Chinese law. The court affirmed that the ownership of such assets is permissible. The court reiterated that any token issuance or financing activities conducted within China remain strictly prohibited.

Source: Teamblockchain

The second development is the China Financial Stability Report 2024, published by the PBOC in December 2024. This report included a section titled “Other Industries and Emerging Risks”, which provided an overview of global regulatory developments in the crypto asset sector. It highlighted regulatory approaches in jurisdictions such as the United States, the European Union and the United Kingdom. Notably, the report also discussed Hong Kong’s regulatory framework for virtual assets, which distinguishes between virtual assets which are tokenised financial assets and those which are not tokenised financial assets. Under Hong Kong’s regime, virtual asset trading platform operators are subject to a distinctive “dual licensing” regime, i.e., security tokens are regulated under the Securities and Futures Ordinance, while non-security tokens fall under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance.

Entities engaging in virtual asset-related businesses must obtain licenses from the relevant regulatory bodies. This approach of regulating security tokens and non-security tokens under separate regimes originated in 2018 (initiated by the author of this article) when the Hong Kong Securities and Futures Commission (“SFC”) addressed the legal jurisdiction issues in regulating virtual assets. While there has been no explicit change in the policy stance of China regarding virtual assets, it is notable that the tone and backdrop appear to be increasingly receptive. The previous 924 Notice, for instance, contained strong language condemning activities deemed contrary to public morals. However, the latest publications have acknowledged property rights in virtual assets and referenced developments in other jurisdictions, signalling a more nuanced and less adversarial tone. This shift is not entirely surprising, as China has been closely monitoring global market and regulatory trends. Similarly, in the United States, where virtual assets were once criticised there is a growing openness to integrate these assets into the traditional financial system, as evident from the approvals of virtual asset ETFs. Notably, the US government has recently proposed the development of a comprehensive federal regulatory framework for digital assets, emphasising oversight of market structure, risk management and consumer protection. Additionally, the proposal includes an evaluation of the potential creation and maintenance of a national digital asset stockpile. These reflect a broader trend toward institutionalising digital assets within the regulatory and financial systems of major economies. Moving forward, it will be crucial to observe how regulatory approaches evolve in key jurisdictions, including China, as the global landscape continues to develop.

In this context, Hong Kong has continued to emerge as a premier hub for virtual asset firms, offering a balanced mix of regulatory clarity, operational efficiency, and access to a robust financial ecosystem. Notably, Hong Kong stands out as one of the first major jurisdictions to introduce a comprehensive regulatory regime for different types of virtual asset activities in 2018/2019. In particular, the SFC has established a clear and robust licensing process tailored for virtual asset businesses. For instance, securities broker-dealers can apply to operate as a prime broker to trade virtual assets for clients or simply serve as an introducing broker. However, the SFC imposes certain restrictions, such as requiring brokers to partner only with licensed virtual asset trading platforms in Hong Kong. While jurisdictions such as the United Kingdom, Singapore and Dubai may not be subject to such constraints, it is important to consider the associated costs and the expediency of operating such businesses in different regions. Acquiring a virtual asset trading platform (“VATP”) licence in Hong Kong is notably challenging, demanding significant resources and financial commitment. Nevertheless, obtaining this licence enhances a firm's credibility and positions it to elevate its reputation, thereby attracting institutional investors - a critical advantage in the competitive crypto landscape.

The SFC also delineates a clear regulatory framework for asset managers looking to manage crypto funds or discretionary accounts, subject to stringent requirements designed to mitigate the risks associated with virtual assets. Currently, nearly 40 asset managers have secured regulatory clearance to incorporate virtual assets into their portfolios. The Hong Kong Monetary Authority (“HKMA”) also plays a pivotal role in advancing the virtual asset ecosystem. In December 2024, the HKMA introduced a Stablecoin Bill into the Legislative Council for reading. This initiative aims to establish a regulatory framework for licensing stablecoin issuers in Hong Kong. Furthermore, among other initiatives, the HKMA has launched Project Ensemble Sandbox, which introduces four primary themes of asset tokenization use cases for initial experimentation, marking a significant advancement in the practical application of tokenisation within the financial sector. For virtual asset players, business growth post-licensing is a crucial consideration. Hong Kong offers unique advantages in this regard. Unlike Singapore, which imposes restrictions on the public marketing of regulated crypto services and prohibits the use of key opinion leaders (KOLs) for promotional purposes, Hong Kong permits licensed virtual asset entities to engage in marketing activities unless they are subject to specific licensing conditions. This flexibility empowers businesses to broaden their client base and effectively establish market dominance.

Hong Kong’s regulators are well-acquainted with a wide array of financial instruments and have exhibited a progressive stance towards innovation. A notable example is Hong Kong's approval of Asia’s inaugural spot Bitcoin and Ether ETFs, underscoring the SFC’s receptiveness to new financial instruments and its commitment to keeping pace with market developments. Beyond licensing and operational considerations, the regulatory environment and government support are instrumental to the success of virtual asset businesses. In Hong Kong, the SFC and HKMA have taken proactive steps to collaborate closely with industry stakeholders, fostering two-way communication to develop a risk-based regulatory framework and introduce sandboxes. These efforts aim to balance market growth with robust oversight, ensuring a secure and dynamic ecosystem for virtual assets. The Hong Kong Government and the SFC has also demonstrated strong support for the sector through initiatives such as the establishment of different task forces and advisory groups. All these reflect Hong Kong’s forward-looking approach to embracing digital innovation. There are also monetary incentives injected to this new developing section, for example, the HKMA has launched the Digital Bond Grant Scheme to accelerate the development of the digital securities market and encourage the broader adoption of tokenisation technology in capital market transactions. Further reinforcing this commitment, senior Government officials and regulators have actively participated in virtual asset events, engaging with industry leaders and showcasing Hong Kong’s dedication to nurturing the sector.

Regulatory clarity represents another cornerstone of Hong Kong's appeal. Clear and pragmatic regulations instil confidence in businesses, enabling them to innovate and expand without the looming threat of inadvertently crossing into ambiguous territories. This clarity is distinctly preferable to navigating convoluted rules or facing the persistent risk of enforcement actions. China’s stance on cryptocurrencies is evolving in a nuanced manner. While the 924 Notice of 2021 reinforced a strict ban on crypto-related businesses, recent court rulings and financial reports indicate a shift in tone. The Shanghai Songjiang District Court’s acknowledgment of virtual assets as personal property suggests a potential softening of attitudes, even as commercial crypto activities remain prohibited. Meanwhile, Hong Kong has positioned itself as Asia’s leading crypto hub, with a comprehensive licensing regime covering various types of virtual asset activities. The region's openness to Web3 innovation, ETFs, and institutional crypto adoption highlights its ambition to bridge traditional finance with virtual assets.

Globally, regulatory frameworks are converging towards structured oversight rather than outright bans. As China monitors these developments, its long-term regulatory direction remains uncertain. Will it maintain its strict prohibition, or will it gradually integrate virtual assets into its financial ecosystem? The coming years will show whether China follows global trends or carves its own unique path in digital asset regulation.

This article first appeared in Digital Bytes (5th of March, 2025), a weekly newsletter by Jonny Fry of Team Blockchain.