As crypto continues to gain popularity, global regulators are taking strategic actions to ensure the digital sector is well supervised. With the development of the crypto industry, the People’s Bank of China (PBoC) expressed concerns about the lack of comprehensive regulation for digital assets.
The Chinese regulators noted that despite the crypto industry’s growth, they failed to address the risk associated with digital assets. In a recent study titled “People’s Bank of China Financial Stability Report 2023,” the PBoC, for the first time, assessed the development of crypto assets.
Risk Associate with Crypto Assets
The report indicated that the crypto market has witnessed massive growth year after year. Based on the growth of the digital sector, the PBoC called for collaboration with global regulators to supervise the crypto industry.
The PBoC report outlined the challenges facing crypto regulation and decentralized finance (DeFi). With the inherent risks of crypto assets, the PBoC official urged the global regulators to team up and ensure the digital sector is regulated.
In the report, the Chinese regulators urged the global government agencies to embrace the “same business, same risk and same supervision rules.” The PBoC report indicated that the crypto market constitutes 1% of the financial sector.
The Chinese regulators noted that despite the development in the crypto industry, its relation with conventional finance was limited. The proposed rule aimed at preventing regulatory arbitrage in the crypto sector.
China Calls For Collaboration in Regulating Crypto Assets
According to the report, regulatory arbitrage is when excess legal powers are given to specific jurisdictions over others. Citing the risk associated with crypto assets, such as hacking activities, market manipulation, and potential risk in the DeFi ecosystem, the PBoC predicted the likelihood of regulatory arbitrage on digital assets.
The Chinese regulators revisited the shocking events that occurred in the crypto industry. The PBoC official regretted that the crashing of the Terra ecosystem and the implosion of FTX stemmed from the gaps in regulating the crypto sector.
The report underscored the need to eliminate regulatory fragmentation in the crypto sector. Also, the PBoC official argued that to prevent the recurrence of the FTX saga, it was essential to eradicate supervisory arbitrage in the crypto industry.
The PBoC report came days after Chinese authorities had imposed restrictive measures on crypto assets. For years, the Chinese government has levied measures promoting mainstream digital asset adoption.
Irrespective of this, China has witnessed high crypto-related activities, and crypto miners are slowly gaining dominance. The anti-crypto move in China has forced vital industrial players in the crypto and gaming sector to relocate to other jurisdictions.
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