PBOC's Crypto Ban Stands, Yet Underground Mining Thrives

The People's Bank of China (PBOC) has reaffirmed its stringent stance against cryptocurrency, reiterating that digital assets remain illegal under Chinese law and posing significant financial risks. During a November 28 coordination meeting, the central bank emphasized that cryptocurrencies and related business activities violate compliance requirements and cannot serve as legal tender. The PBOC specifically targeted stablecoins, stating they fail to meet customer identification and anti-money laundering (AML) standards, creating vulnerabilities for misuse in money laundering, fraudulent fundraising, and illicit cross-border capital transfers. This position underscores Beijing's continued prioritization of financial stability over the growing global trend of integrating digital assets into traditional markets.

The PBOC's warnings align with China's broader 2021 ban on crypto trading and mining, which remains in force despite the resurgence of underground activity. Recent reports indicate that China now accounts for approximately 14% of global Bitcoin mining, driven by low-cost electricity and excess data center capacity in energy-rich regions like Xinjiang and Sichuan. Industry sources note that miners are exploiting these conditions to operate covertly, with some former participants returning to the sector. Canaan, a major mining rig manufacturer, reported a sharp rebound in domestic sales, attributed to higher Bitcoin prices and U.S. tariff uncertainties disrupting overseas demand.

While the PBOC maintains its prohibition, it has shown subtle flexibility in digital asset policy. Hong Kong's stablecoin legislation, effective in August, and discussions about yuan-backed stablecoins suggest a gradual shift toward controlled digital asset integration. However, the mainland's regulatory framework remains unchanged, with officials stressing the need for strict enforcement to prevent systemic risks.

The PBOC's November meeting highlighted concerns over rising crypto speculation, fueled by global price surges and social media hype, as well as new fraud cases linked to stablecoins.

The contrast between China's approach and global trends is stark. Major economies, including the United States, have introduced frameworks to regulate and integrate digital assets, fostering institutional adoption. Meanwhile, China continues to focus on its central bank digital currency (CBDC), the e-CNY, advancing its use in pilot programs and public-sector payments. This divergence raises questions about long-term market dynamics, as China's underground crypto ecosystem persists despite regulatory pressures.

The PBOC's emphasis on risk prevention reflects broader geopolitical and economic priorities. By banning crypto, Beijing aims to maintain control over capital flows and prevent the erosion of its financial system's stability. However, the resilience of underground mining activity-estimated at 15-20% of global capacity-highlights the challenge of enforcing prohibitions in a decentralized industry. Analysts suggest that while official policies remain rigid, localized incentives in energy-abundant regions may lead to further policy flexibility in the future.

As the global crypto landscape evolves, China's dual approach-strict prohibition in the mainland versus cautious experimentation in Hong Kong-positions it as both a regulatory outlier and a potential innovator in digital finance. The PBOC's latest statements reinforce its commitment to the 2021 ban but leave room for strategic adjustments in a rapidly changing market.