[TL; DR]

The cryptocurrency ecosystem seems to have suffered another major setback as China - one of the largest economies globally - has reportedly cracked down on cryptocurrencies and Non-fungible Tokens (NFTs). This article digs deep into these reports, looking at why WeChat and the Chinese government are taking these measures.

Keywords: WeChat, China, NFT, Ban.

Introduction

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WeChat, one of the biggest messaging platforms in China - boasting of more than 1.1 billion daily users - has reportedly reviewed its policies on usage. This policy review has resulted in the ban and prohibition of accounts that may have provided or are providing cryptocurrencies and NFTs trading services.

The social media platform also has restricted accounts that may have been involved in the issuance, trading, and financing of digital currencies, converting such digital currencies into fiat currencies, token issuance, and derivatives trading.

NFTs also suffer the same fate, as it has been categorized under the "Illegal Business" category.

Is China A Huge Critic Of NFTs?

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Undoubtedly, the government has posed a solid opposition to the presence of digital assets in the country. Earlier in the year, several Chinese security and financial institutions started an initiative to prevent any risks from digital assets.

It stated that the digital asset market could come under fire in the nearest future, citing money laundering and other risks related to the digital assets. As a matter of fact, the Chinese government refers to NFTs as "digital collectibles" as a measure to denounce activities that encompass profiting off NFTs.

WeChat's Restriction of Crypto-related Activities

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As a backup to the actions and measures taken by the Chinese government, WeChat began to restrict many accounts that dealt with NFTs. This restriction was its initial reaction to the heavy scrutiny the Chinese government began to place on cryptocurrencies and their related services.

Although, the platform in a release stated that its resolution was taken to prevent digital asset-related risks. It also added that some NFT platforms must register qualification certificates before further engaging the network. In other words, the Chinese Cyberspace Administration must register and authenticate any blockchain organization before they can get access to use WeChat's platform and services.

Reasons for the Restriction

WeChat distancing itself from the nascent technology is an action stemming from fear of a crackdown from the Beijing capital. It is also a decisive action given regulatory ambiguity in the NFT subset of Blockchain technology.

This ambiguity arises because although NFT assets can be purchased with fiat currencies, firms avoid secondary trading of NFTs to avert any foreseeable issue arising from lack of compliance in their tech and financial activities.

Nevertheless, the adoption of Non-fungible Tokens is on the rise in China, as digital collectibles platforms have soared in China, skyrocketing from 100 platforms in February to over 500 at the time of writing this piece.

Why Is Wechat Changing Regulations?

It is known that WeChat is a subsidiary of one of China's largest technology companies, Tencent Companies. Although there is no evidence that the Chinese government had coerced the company to alter its terms and conditions, its conglomerates adopt measures in line with the government's regulations, especially in data sharing, crypto-related services, etc.

This position is to ensure that the government is without reason to stick its nose into its day-to-day activities.

Bao Linghao, an analyst from Trivium China, stated that the tech firm adopted these measures to prevent altercations with the Chinese government, even as regulations related to crypto-services are not cast in stone. Policymakers in the country have opposed any speculative market, such as digital currencies, that could distort the domestic financial market.

Yifan He, the key figure behind the Blockchain-based Service Network (BSN), a state-backed firm, stated that the effects of sensationalizing NFTs as investment products are pretty precarious and offer a bleak future for such an industry if the major key players continue to treat NFTs as such.

He mentioned that “some NFTs carry the characteristics of quasi-financial products, and there's no way Chinese regulators will tolerate the speculative activity in the asset class.”.

Hongfei Da, the CEO of Onchain Technology, further quipped that, in principle, there was a need to avoid the financialization of digital collectibles. That it could easily be used as a tool for speculation once it's financialised. Highlighting the measures set in place to avoid the financialization of digital collectibles, he concluded that each platform has come up with its own interpretations, with some setting lock-in periods for reselling and some restricting the volume of transfers.

The Amended Code Of Conduct

Section 3.24 of WeChat's "Code of Conduct" notes that "any account participating in the issuance, trading, or financing of virtual currency shall face repercussions." Furthermore, profiles and accounts that deal in secondary trades shall also be dealt with in accordance with the modified rules.

A tweet put out by Colin Wu, a Hong-Kong based cryptocurrency writer, further shed light on the rules set out by the platform. He stated:

"The account number involved in the issuance, transaction, and financing of virtual currency, such as providing transaction entry, guidance, issuance, channel guidance, etc., including but not limited to the following types:

3.24.1. The transaction and exchange business between virtual currency and real currency, virtual currency, and virtual currency;

3.24.2. Providing information for intermediary and pricing services for virtual transactions;

3.24.3. token issuance financing and virtual currency derivatives trading."

Possible Penalties For Breach Of The Code Of Conduct

The new policy dictates that where there are breaches of the amended code, the media platform will provide a time limit within which such accounts must rectify the perceived violation. While this is ongoing, certain features of the account will be restricted pending the rectification of the violation. In severe cases, the account will be permanently banned.

It is interesting to note that several other platforms have restricted accounts that resell these "digital collectibles" for profit. For instance, Topnotch - Ant Group's digital collecting service - reportedly restricted over 56 accounts that were found to have been reselling collectibles for profit. At the beginning of 2022, 116 were punished for using _script_s and, in some cases, plug-ins to collect these collectibles.

The Opportunities That Abound

Despite the regulatory ambiguities surrounding this area, several other platforms have decided not to miss the potential of trading these digital assets.

Pengfei Wang, the current CEO of ShucangCN - one of the quickest growing NFT platforms in China - stated that many platforms operate secondary markets by themselves. Even though he has seen a spike in trading demand from the user community of his company, the firm is ambitious to set out a marketplace that negates the usual high risks of regulatory loggerheads.

The firm acquired an auction company this year, intending to offer auction services later in the year.

Conclusion

In conclusion, one thing remains certain; anti-cryptocurrency regulations in China will become more precise and stricter in the coming months and years. With China hoping to reduce cryptocurrency and NFT-related activities to the barest minimum, many businesses in the financial services industry will have to restructure their business model or close business in China.

Author: Gate.io Observer: M. Olatunji

Disclaimer:

*This article represents only the views of the observers and does not constitute any investment suggestions.

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