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Father of Smart Contracts Nic Carter: Why I Oppose Bitcoin Strategic Reserves
Original Title: I don't support a Strategic Bitcoin Reserve, and neither should you
Original Author: Nic Carter, Partner at Castle Island Ventures
Article Translation: Luffy, Foresight News
Recently, the concept of a Strategic Bitcoin Reserve (SBR) has begun to receive widespread attention. While Trump advocates for continuing to hold the Bitcoin seized by the U.S. government, some proposals go even further, such as Senator Lummis's recent bill suggesting the U.S. government purchase 1 million Bitcoins within five years.
Bitcoin enthusiasts believe that the advocacy for a strategic reserve is almost a foregone conclusion. But I believe otherwise—it's not a good idea to have a Bitcoin Strategic Reserve. Allow me to explain.
Are We Talking about Stockpiles, Sovereign Wealth Funds, or Reserves?
First, we need to clarify the concept of a Bitcoin "reserve." In his speech at the Nashville Bitcoin Conference, Trump promised, "I declare that if elected, my government, the United States of America, will implement the policy that all Bitcoin currently held or received in the future by the U.S. government will be retained in full... This will effectively become the core of the national Bitcoin strategic reserve."
I strongly support the idea of the U.S. government holding a Bitcoin stockpile, but I do not support buying more Bitcoin. Some proposals suggest the government should acquire a significant amount of Bitcoin: ranging from around 800,000 BTC (BPI), to 1 million BTC (Lummis), to 4 million BTC (RFK Jr).
Senator Lummis, Michael Saylor, and organizations like the Bitcoin Policy Institute have been discussing the "Strategic Bitcoin Reserve (SBR)."
Under Senator Lummis's framework, the U.S. government would purchase 1 million BTC within five years and hold it for at least 20 years. Her logic is to "strengthen America's financial position, hedge against economic uncertainty and currency instability." Lummis's bill explicitly states that the SBR will "reinforce the dollar's position" and compares it to gold's role in previous monetary eras.
It is important to distinguish these proposals from the idea of buying Bitcoin in a sovereign wealth fund, as advocated by George Selgin. To my knowledge, the main proponents of the SBR do not see it as an asset in a national investment portfolio; they explicitly tie Bitcoin to the dollar and suggest that Bitcoin would actually strengthen the dollar. This implies they envision a monetary system where Bitcoin plays a positive role. Currently, it plays a role similar to foreign exchange reserves, but perhaps in the future, it may become the actual basis for a new commodity standard, just like the Bretton Woods system. (For those who think I'm exaggerating, you simply need to read the words written by SBR advocates.)
It should be clear that I am not against the idea of retaining the existing confiscated Bitcoin (I think this is the policy Trump will eventually adopt), nor am I against the idea of putting Bitcoin into a sovereign wealth fund (although the U.S. does not have a sovereign wealth fund). Instead, I am against the idea of creating a Bitcoin strategic reserve and giving it any form of monetary role.
Bitcoin Reserves Will Weaken, Not Strengthen, the Dollar
My main point is that Bitcoin reserves will not strengthen the dollar. Unlike other countries, the U.S. issues the global reserve currency—the dollar. Other countries can try to buy Bitcoin, and indeed some countries are doing so.
If you are Russia or Iran, considering adding a non-confiscatable asset to your foreign exchange reserves may be reasonable, especially after the U.S. seized Russian bonds in 2022. But the U.S. does not need to hedge its exposure to the dollar's risk because it issues the dollar itself.
Buying Bitcoin and giving it a monetary role (whether as a foreign exchange reserve or a more significant role) implies that the U.S. has lost confidence in the current dollar-based system.
This would mean the U.S. government is abandoning the unbacked fiat currency standard, which would throw the system into chaos. Currently, the dollar is supported by various aspects such as the U.S. role as a global trade manager, the solidity of the U.S. economy, the U.S. government's ability to repay, the ability of the U.S. to show hard and soft power, the depth of the U.S. securities market, and the ubiquity of the dollar in global trade and finance.
If the U.S. government suddenly changes its stance, saying, "We are reconsidering the entire Washington Consensus," the market will begin to question what exactly is happening in the government. Are they planning a default? Are they going to dismantle the Bretton Woods institutions? Are they hinting at massive deficits and high interest rates?
It needs to be emphasized that I do not think the government is considering these things, but bond traders would immediately become concerned.
You might object, "We are not talking about a return to some form of a new gold standard, i.e., with the dollar weighted against Bitcoin. We are just talking about buying some Bitcoin and putting it on the U.S. balance sheet."
The market will not see it that way. If the Bitcoin on the balance sheet is merely symbolic, it will be an extremely expensive symbol. At current prices, one million Bitcoins would cost $100 billion. Of course, the U.S. government is a well-known price-insensitive buyer, so the U.S. could end up buying these Bitcoins at $1 million each, meaning spending $1 trillion. That's a significant expenditure that should be spent on more meaningful things.
I suspect the market will not see the purchase of Bitcoin as symbolic but rather as the first step towards a return to a new commodity standard based on Bitcoin.
Austin Campbell argues that this will "accelerate the demise of the dollar, as it signals to the world that the United States does not intend to manage its finances properly and may at some point revalue in terms of Bitcoin."
Assuming the probability of the Lummis SBR proposal starting to converge to 1. You would see the financial markets collapse. Interest rates will soar as U.S. debt investors will begin to question whether the U.S. is considering a complete exit from the Bretton Woods II system.
The cost of capital for everyone on Earth will rise sharply, and inflation may worsen. With a financial market crash and Bitcoin skyrocketing, there will be a massive redistribution of wealth.
In other words, the U.S. is considering abandoning its current relatively stable monetary system in the short term and replacing it with a currency standard based on an asset that is highly volatile rather than gold-based, causing panic among its creditors.
In my view, once the Lummis-style reserve is close to its target, the market will go crazy, and Trump will be forced to retract the policy.
While BSR supporters may claim not to advocate for a new gold standard based on Bitcoin, their stated intent is very radical, and if the reserve becomes a reality, the bond market will panic.
From a political perspective, SBR is unwise
I believe that any legislation proposing to establish a strategic Bitcoin reserve would be completely unworkable in Congress. Just a few weeks ago, I visited some cryptocurrency-friendly members of Congress in Washington, and this is what I experienced. Congress is in a precarious situation, with the Republicans holding only a slim majority. They cannot push through a bill on a partisan basis, and I am uncertain if Republicans would even vote on this.
Supporters of the reserve strategy insist that the executive branch can raise funds for the reserve strategy without legislation. Of course, the executive branch can also spend money without prior authorization from Congress. Bitcoin supporters have proposed various methods. But these methods completely miss the point. Imposing a Bitcoin reserve by executive order is undemocratic and likely to be overturned in subsequent administrations if not voted on by Congress.
The executive branch can unilaterally decide to launch a costly foreign war and divert funds through various clandestine schemes. But such action would be highly unpopular as it would be seen as undemocratic. Our system of checks and balances in the Republic dictates that the president acts, but Congress authorizes (and appropriates). We do not have a tyrant in charge.
Due to Congress holding the purse strings, American citizens are consulted when making significant spending decisions.
In other words, in a household, a husband might not mind his wife occasionally using his credit card for shopping. But if she decides to buy a new car or a house, he would certainly prefer to be consulted. Of course, technically, if the limit is high enough, she might be able to use her husband's credit card to buy a car. But that misses the point. She should seek her husband's input when making such significant decisions. The President should seek Congress's input on any major expenditure (thus seeking the American people’s input), and a Bitcoin reserve certainly falls into this category.
You might say, “But Trump has the power.” Not true. He does not have the authority to spend billions to build a strategic Bitcoin reserve. The Bitcoin strategic reserve was not part of the election debates nor meaningfully covered in the media.
He mentioned the Bitcoin reserve (holding the existing confiscated Bitcoin) in his Nashville speech, rather than the government purchasing additional Bitcoin. Trump is trying to bypass Congress to spend government funds on Bitcoin, which is politically unpopular. This would deplete his limited political capital. Trump's agenda is much broader than Bitcoin. I anticipate that even if he momentarily finds the reserve concept exciting, political logic will eventually prevail.
Another issue with mandating Bitcoin purchases through executive orders is that what is easy to do can also be easy to undo. If such a policy is unpopular, a future Democratic administration would undoubtedly sell off the reserve, causing turmoil in the Bitcoin market.
What Bitcoin users should hope for is democratic consensus, where a Bitcoin reserve or stockpile is deemed a good idea and is implemented through bipartisan legislation or even a constitutional amendment. Generally, meaningful monetary reforms are enacted through legislation, such as the Gold Reserve Act of 1934 or the Gold Reserve Amendments of 1977 following Nixon's suspension of the Bretton Woods system.
Bitcoin users should hope that the Bitcoin reserve can be enduring rather than a flash in the pan. Policies implemented by the new Trump administration through executive orders will not be lasting.
The U.S. Government's Purchase of Bitcoin Will Severely Estrange the Public
Undoubtedly, an SBR policy will be seen as a massive wealth transfer from American taxpayers to wealthy Bitcoin holders. It will be a step backward and will not be welcomed by the public. Bitcoin holders are a relatively small group. The Federal Reserve found in 2022 that only 8% of American adults hold cryptocurrency, with a higher percentage among the wealthy.
Even if the funding source for the SBR is some fiscally "neutral" means (such as selling some gold), it will still be seen as undeserved by Bitcoin holders. Those funds could be used for anything else rather than allocated to Bitcoin holders.
A significant monetary policy change benefiting a small portion of Americans will turn all non-Bitcoin holders against Bitcoin holders. I suspect many Americans won't grasp the logic of SBR because the dollar currently isn't in an obvious crisis.
If dollarization accelerates, the U.S. finds itself in some kind of default situation, interest rates spike, many other countries start adopting Bitcoin as a reserve asset, then people's attitudes may be different in ten or twenty years. But that's not the case today.
If you remember, student loan forgiveness was quite unpopular as it was seen as a bailout for upper-middle-class Americans who could afford to go to college and get worthless liberal arts degrees. (Interestingly, Elizabeth Warren proposed a unilateral $640 billion spending plan to cancel student loans in 2019/2020, which was ultimately rejected by Congress.)
Biden's student loan forgiveness plan will benefit around 43 million Americans, a group larger than Bitcoin holders. In this light, the disruption caused by Bitcoin reserves will be more severe.
Currently, due to Bitcoin's gradual organic adoption, the financial world is becoming interested in Bitcoin. The reserve strategy will pit regular Americans against Bitcoin holders, severely impacting Bitcoin adoption.
Bitcoin Reserves Serve No "Strategic" Purpose
The term SBR is confusing, especially the word "strategic." The U.S. government holds many commodities truly used for strategic purposes. Most notably, the Strategic Petroleum Reserve stabilizes the oil market.
It's worth noting that Biden actually sold a significant amount of oil at a high price and later bought it back, turning a profit. We also hold or have held substantial reserves of heating oil, natural gas, grains, dairy products, cobalt, titanium, tungsten, helium, and rare minerals and medical equipment.
The commonality is that these commodities have some industrial use, and the government is interested in holding them for emergencies or maintaining market stability.
In contrast, Bitcoin has no industrial use. The U.S. government does not "need" Bitcoin to trade at any specific price level. Whether Bitcoin's trading price is $1 or $1 million, it makes no difference to the government. Bitcoin also doesn't generate cash flow, so reserves won't help pay future debt interest.
The only potential "strategic" role Bitcoin can play is akin to the U.S. government's existing reserve assets like gold and foreign exchange. In other words, it serves no purpose. As George Selgin painstakingly explained, compared to other developed countries, America's foreign exchange reserves are relatively small. This is because the dollar is a truly free-floating currency, and the U.S. doesn't manage that peg at all. Since 1971, the approximately 8130 tons of gold the U.S. holds have no relevant purpose. They are purely historical relics held out of tradition. The last major intervention to manage the dollar exchange rate occurred in the 1980s.
Supporters of the Bitcoin Reserve Strategy often significantly overestimate the role of gold in the US dollar system. Ultimately, when it comes to the ubiquity of the dollar system, the US government's balance sheet is almost irrelevant.
What truly underpins the dollar is:
· US GDP growth, generating tax liabilities that can only be paid in dollars
· Credibility and stability of US government and monetary policy
· US capital markets being the most attractive and liquid market globally, making it a hub for global investment
· Network effects of the dollar's dominance in trade settlement, commodities markets, foreign exchange markets, and debt markets
· The US continuing to play the role of global hegemon and global trade and security guarantor
Gold and Bitcoin are fundamentally irrelevant in today's US monetary system. Perhaps one day they will play a role, but the current non-convertible standard is in no way built on commodity reserves.
Nothing but Bitcoin?
Why reserve Bitcoin? Why not something else? Bitcoin holders have yet to provide a compelling answer. You might say that Bitcoin is valuable (market cap around $2 trillion), has global liquidity, and is held by many. However, Bitcoin is not unique in this respect. Can you make an argument to support a Bitcoin reserve that does not also apply to Apple or NVIDIA stock?
“Well,” you might say, “these are claims on corporate cash flows, not bearer assets. Bitcoin is special because it cannot be seized.” However, it is speculated that Apple or NVIDIA are not at risk of having their assets and intellectual property confiscated. This would be another reason for a country to reject holding US company equities as reserves, but we are talking about the US government here.
Choosing a Bitcoin reserve over gold also makes no sense. If you want to re-monetize hard assets and use them as the basis of a monetary system, gold is the obvious choice. If we want to “lead” other nations in reserve assets (a common argument for supporting SDRs), gold is the perfect choice because we have more gold than anyone else. Just by re-monetizing gold, we are already ahead.
Gold is also a “bearer” asset as ownership is not a claim on anything, just simple possession of gold bars and ingots. If Bitcoin holders successfully convince the US government to exit the Bretton Woods II standard and return to a pre-1971 commodity standard, then gold is indeed a better choice. It has a longer history, more people own it, it is valued at about nine times Bitcoin, its volatility is much lower, and we already have it, so monetizing it would be much cheaper.
If you don't like gold because it's not a "high-growth" asset like Bitcoin, then you might consider rapidly growing assets such as NVIDIA, Apple, or Microsoft stock. If we consider which commodities the United States might invest in for strategic purposes, my top pick would be AI data centers or chip manufacturing. They serve an obvious strategic purpose and would also be economically fruitful. We then start discussing using the resources of the Treasury Department or the Federal Reserve for "industrial policy."
Most conservatives and liberals are skeptical of the government allocating resources in this top-down manner and prefer to let the private sector address this issue. I don't like Biden's large-scale infrastructure spending; I find it to be very wasteful. Therefore, I don't support further government intrusion into the private sector, especially through blatant dollar issuance.
Usually, the U.S. government does not actively intervene in the market using currency tools other than setting interest rates; its role is to establish rules and maintain system stability, not actively deploy government funds into commodities for day trading. (That's why many people are skeptical of Biden's sale of the strategic petroleum reserve.) We are a market-based capitalist economy, not a centrally planned economy. Managing commodities hedge funds is not the government's job.
This is left to the private sector, and only in cases of urgent strategic need to increase reserves of a critical commodity will the government intervene. Ultimately, if the U.S. private sector invests in appreciating commodities and assets, the U.S. government still benefits from capital gains taxes.
Building an SBR Makes No Sense Now
Why create a Bitcoin reserve now? What is so special at present that makes a Bitcoin reserve a top priority? Nothing. The dollar has not collapsed; in fact, it is thriving. The U.S. dollar index has been rising for the past 15 years, which could harm U.S. manufacturing and other countries with dollar-denominated debt.
The U.S. GDP is growing relative to other regions of the world. Especially Europe, which is slowly declining, while China is facing its first serious economic crisis since opening up. The U.S. stock market is outperforming the rest of the world; the U.S. stock market represents about 50% of the global stock market, and these trends will continue.
You might say, "But the dollar is falling against hard assets like gold. Its purchasing power is decreasing, and we are in a time of uncertainty and high inflation." But the dollar does not seem to be in crisis.
Interest rates are slightly higher than the past decade, but no one is panicking about the U.S. government's ability to pay. The dollar's share of global foreign exchange reserves has declined over the past few decades, but there is no real crisis there either. The dollar still reigns supreme globally, with no potential challengers anywhere. Whether it's the ailing euro or the (managed) renminbi, neither has the capacity or ambition to challenge the dollar's status as the world's preferred reserve asset.
The sole reason for the serious discussion of SBR today is the victory of Trump's election. Bitcoin enthusiasts seized on this for political expediency, hoping that he would not only introduce more favorable regulations but also truly become a national-level Bitcoin buyer.
However, Bitcoin's scale and liquidity are still far from enough to have any impact on the US reserve portfolio, and under the gold standard, it is certainly not ready to become a monetary commodity like gold. Its current value is only about $2 trillion, while gold's value is about $17 trillion. Bitcoin is still extremely unstable and clearly unsuitable as a unit of account.
Bitcoin holders should be more patient. Bitcoin has performed remarkably well in its short 15-year lifespan and is becoming an important global monetary asset.
Over time, its volatility will ease (its market cap and liquidity will grow), and it will become a more suitable asset for governments to consider in their portfolios. But for now, it does not play a meaningful role in the US monetary system.
Bitcoin Reserves May Not Be What You Want
The fact is, there is no need to establish any form of Bitcoin reserve. The US just needs to wait patiently, and there will be no loss. If Bitcoin continues to monetize and ultimately challenge gold, other countries will include Bitcoin as part of their sovereign wealth funds or even start using Bitcoin to "back" their national currencies, and then the US will still have enough time to act.
The US holds more Bitcoin than any other country's institutions, investors, and individuals combined. If the US government really wants Bitcoin, they have more than enough means to acquire it at any time.
They could buy Bitcoin on the open market. In my view, it is more likely that they would opt for a cheaper route, such as setting price caps, prohibiting private ownership, and mandating the exchange of Bitcoins held by Americans, just as they did with gold in 1933.
They could simply seize the Bitcoins held on domestic platforms, as US custodians are the largest to date. They could nationalize Bitcoin mining companies. They could raise capital gains taxes and insist on physical payment. They could arrest individuals known to hold significant amounts of Bitcoin and confiscate their funds. They could invest resources in developing quantum computing sufficient to steal about 4 million Bitcoins vulnerable to quantum attacks.
"Wait... that's not right." But that's the crux of the matter. You cannot dictate how the US government would acquire Bitcoin. If you successfully convince them of the merits of Bitcoin and they truly resolve to reserve Bitcoin, they will do so in the most politically expedient manner.
This may not necessarily be in the best interest of American Bitcoin holders. If given the choice between buying 1 million BTC at a price of $1 million per BTC and seizing 1 million BTC through other means, they would opt for a more efficient method.
If There Were No Bitcoin, How Would We Back the Dollar?
The long-term solvency of the U.S. government is undoubtedly concerning. The debt-to-GDP ratio is nearing historical highs at 120%. Interest costs as a proportion of GDP are at their highest levels in 60 years and continuing to rise. Federal net outlays as a percentage of GDP are at their highest levels in a century, second only to levels during and just after World War II.
While the deficit has come down from its peak during the COVID-19 pandemic, it remains elevated, leaving little room for maneuver should an economic downturn occur. The recklessness of the past four years of spending has led to an outbreak of inflation that we are still contending with.
In the past quarter-century, the share of the dollar in global foreign exchange reserves has dropped from 70% to 60%. Some buyers are now more cautious about purchasing U.S. Treasuries following the U.S. seizure of Russian reserves in 2022.
All of this suggests that the dollar may face long-term challenges, though a crisis does not appear imminent. Should we enter an economic downturn and the government find itself unable to engage in large-scale stimulus spending, circumstances may change as interest rates are already quite high, and we are facing massive deficits.
If it were up to me, I would do the following:
· Do everything possible to boost GDP growth. This means cheaper energy, nurturing high-growth industries like artificial intelligence, and unleashing the private sector
· Scale back government spending to reduce the deficit, as government spending is far more wasteful than equivalent capital in the private market
· Limit political interference in the dollar market, for example, recognizing how the sanctioning power of the dollar is at odds with its international utility
· Allow inflation to persist for a period to reduce the real burden of debt
The good news is that the incoming Treasury Secretary Scott Bessent's 3-3-3 plan largely accomplishes this. We don't need Bitcoin.
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China's Central Bank and Eight Other Departments' Latest Regulatory Focus: Key Attention to RWA Tokenized Asset Risk
Foreword: Today, the People's Bank of China's website published the "Notice of the People's Bank of China, National Development and Reform Commission, Ministry of Industry and Information Technology, Ministry of Public Security, State Administration for Market Regulation, China Banking and Insurance Regulatory Commission, China Securities Regulatory Commission, State Administration of Foreign Exchange on Further Preventing and Dealing with Risks Related to Virtual Currency and Others (Yinfa [2026] No. 42)", the latest regulatory requirements from the eight departments including the central bank, which are basically consistent with the regulatory requirements of recent years. The main focus of the regulation is on speculative activities such as virtual currency trading, exchanges, ICOs, overseas platform services, and this time, regulatory oversight of RWA has been added, explicitly prohibiting RWA tokenization, stablecoins (especially those pegged to the RMB). The following is the full text:
To the people's governments of all provinces, autonomous regions, and municipalities directly under the Central Government, the Xinjiang Production and Construction Corps:
Recently, there have been speculative activities related to virtual currency and Real-World Assets (RWA) tokenization, disrupting the economic and financial order and jeopardizing the property security of the people. In order to further prevent and address the risks related to virtual currency and Real-World Assets tokenization, effectively safeguard national security and social stability, in accordance with the "Law of the People's Republic of China on the People's Bank of China," "Law of the People's Republic of China on Commercial Banks," "Securities Law of the People's Republic of China," "Law of the People's Republic of China on Securities Investment Funds," "Law of the People's Republic of China on Futures and Derivatives," "Cybersecurity Law of the People's Republic of China," "Regulations of the People's Republic of China on the Administration of Renminbi," "Regulations on Prevention and Disposal of Illegal Fundraising," "Regulations of the People's Republic of China on Foreign Exchange Administration," "Telecommunications Regulations of the People's Republic of China," and other provisions, after reaching consensus with the Cyberspace Administration of China, the Supreme People's Court, and the Supreme People's Procuratorate, and with the approval of the State Council, the relevant matters are notified as follows:
(I) Virtual currency does not possess the legal status equivalent to fiat currency. Virtual currencies such as Bitcoin, Ether, Tether, etc., have the main characteristics of being issued by non-monetary authorities, using encryption technology and distributed ledger or similar technology, existing in digital form, etc. They do not have legal tender status, should not and cannot be circulated and used as currency in the market.
The business activities related to virtual currency are classified as illegal financial activities. The exchange of fiat currency and virtual currency within the territory, exchange of virtual currencies, acting as a central counterparty in buying and selling virtual currencies, providing information intermediary and pricing services for virtual currency transactions, token issuance financing, and trading of virtual currency-related financial products, etc., fall under illegal financial activities, such as suspected illegal issuance of token vouchers, unauthorized public issuance of securities, illegal operation of securities and futures business, illegal fundraising, etc., are strictly prohibited across the board and resolutely banned in accordance with the law. Overseas entities and individuals are not allowed to provide virtual currency-related services to domestic entities in any form.
A stablecoin pegged to a fiat currency indirectly fulfills some functions of the fiat currency in circulation. Without the consent of relevant authorities in accordance with the law and regulations, any domestic or foreign entity or individual is not allowed to issue a RMB-pegged stablecoin overseas.
（II）Tokenization of Real-World Assets refers to the use of encryption technology and distributed ledger or similar technologies to transform ownership rights, income rights, etc., of assets into tokens (tokens) or other interests or bond certificates with token (token) characteristics, and carry out issuance and trading activities.
Engaging in the tokenization of real-world assets domestically, as well as providing related intermediary, information technology services, etc., which are suspected of illegal issuance of token vouchers, unauthorized public offering of securities, illegal operation of securities and futures business, illegal fundraising, and other illegal financial activities, shall be prohibited; except for relevant business activities carried out with the approval of the competent authorities in accordance with the law and regulations and relying on specific financial infrastructures. Overseas entities and individuals are not allowed to illegally provide services related to the tokenization of real-world assets to domestic entities in any form.
(III) Inter-agency Coordination. The People's Bank of China, together with the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Public Security, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, the State Administration of Foreign Exchange, and other departments, will improve the work mechanism, strengthen coordination with the Cyberspace Administration of China, the Supreme People's Court, and the Supreme People's Procuratorate, coordinate efforts, and overall guide regions to carry out risk prevention and disposal of virtual currency-related illegal financial activities.
The China Securities Regulatory Commission, together with the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Public Security, the People's Bank of China, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the State Administration of Foreign Exchange, and other departments, will improve the work mechanism, strengthen coordination with the Cyberspace Administration of China, the Supreme People's Court, and the Supreme People's Procuratorate, coordinate efforts, and overall guide regions to carry out risk prevention and disposal of illegal financial activities related to the tokenization of real-world assets.
(IV) Strengthening Local Implementation. The people's governments at the provincial level are overall responsible for the prevention and disposal of risks related to virtual currencies and the tokenization of real-world assets in their respective administrative regions. The specific leading department is the local financial regulatory department, with participation from branches and dispatched institutions of the State Council's financial regulatory department, telecommunications regulators, public security, market supervision, and other departments, in coordination with cyberspace departments, courts, and procuratorates, to improve the normalization of the work mechanism, effectively connect with the relevant work mechanisms of central departments, form a cooperative and coordinated working pattern between central and local governments, effectively prevent and properly handle risks related to virtual currencies and the tokenization of real-world assets, and maintain economic and financial order and social stability.
(5) Enhanced Risk Monitoring. The People's Bank of China, China Securities Regulatory Commission, National Development and Reform Commission, Ministry of Industry and Information Technology, Ministry of Public Security, State Administration of Foreign Exchange, Cyberspace Administration of China, and other departments continue to improve monitoring techniques and system support, enhance cross-departmental data analysis and sharing, establish sound information sharing and cross-validation mechanisms, promptly grasp the risk situation of activities related to virtual currency and real-world asset tokenization. Local governments at all levels give full play to the role of local monitoring and early warning mechanisms. Local financial regulatory authorities, together with branches and agencies of the State Council's financial regulatory authorities, as well as departments of cyberspace and public security, ensure effective connection between online monitoring, offline investigation, and fund tracking, efficiently and accurately identify activities related to virtual currency and real-world asset tokenization, promptly share risk information, improve early warning information dissemination, verification, and rapid response mechanisms.
(6) Strengthened Oversight of Financial Institutions, Intermediaries, and Technology Service Providers. Financial institutions (including non-bank payment institutions) are prohibited from providing account opening, fund transfer, and clearing services for virtual currency-related business activities, issuing and selling financial products related to virtual currency, including virtual currency and related financial products in the scope of collateral, conducting insurance business related to virtual currency, or including virtual currency in the scope of insurance liability. Financial institutions (including non-bank payment institutions) are prohibited from providing custody, clearing, and settlement services for unauthorized real-world asset tokenization-related business and related financial products. Relevant intermediary institutions and information technology service providers are prohibited from providing intermediary, technical, or other services for unauthorized real-world asset tokenization-related businesses and related financial products.
(7) Enhanced Management of Internet Information Content and Access. Internet enterprises are prohibited from providing online business venues, commercial displays, marketing, advertising, or paid traffic diversion services for virtual currency and real-world asset tokenization-related business activities. Upon discovering clues of illegal activities, they should promptly report to relevant departments and provide technical support and assistance for related investigations and inquiries. Based on the clues transferred by the financial regulatory authorities, the cyberspace administration, telecommunications authorities, and public security departments should promptly close and deal with websites, mobile applications (including mini-programs), and public accounts engaged in virtual currency and real-world asset tokenization-related business activities in accordance with the law.
(8) Strengthened Entity Registration and Advertisement Management. Market supervision departments strengthen entity registration and management, and enterprise and individual business registrations must not contain terms such as "virtual currency," "virtual asset," "cryptocurrency," "crypto asset," "stablecoin," "real-world asset tokenization," or "RWA" in their names or business scopes. Market supervision departments, together with financial regulatory authorities, legally enhance the supervision of advertisements related to virtual currency and real-world asset tokenization, promptly investigating and handling relevant illegal advertisements.
（IX） Continued Rectification of Virtual Currency Mining Activities. The National Development and Reform Commission, together with relevant departments, strictly controls virtual currency mining activities, continuously promotes the rectification of virtual currency mining activities. The people's governments of various provinces take overall responsibility for the rectification of "mining" within their respective administrative regions. In accordance with the requirements of the National Development and Reform Commission and other departments in the "Notice on the Rectification of Virtual Currency Mining Activities" (NDRC Energy-saving Building [2021] No. 1283) and the provisions of the "Guidance Catalog for Industrial Structure Adjustment (2024 Edition)," a comprehensive review, investigation, and closure of existing virtual currency mining projects are conducted, new mining projects are strictly prohibited, and mining machine production enterprises are strictly prohibited from providing mining machine sales and other services within the country.
（X） Severe Crackdown on Related Illegal Financial Activities. Upon discovering clues to illegal financial activities related to virtual currency and the tokenization of real-world assets, local financial regulatory authorities, branches of the State Council's financial regulatory authorities, and other relevant departments promptly investigate, determine, and properly handle the issues in accordance with the law, and seriously hold the relevant entities and individuals legally responsible. Those suspected of crimes are transferred to the judicial authorities for processing according to the law.
（XI） Severe Crackdown on Related Illegal and Criminal Activities. The Ministry of Public Security, the People's Bank of China, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, as well as judicial and procuratorial organs, in accordance with their respective responsibilities, rigorously crack down on illegal and criminal activities related to virtual currency, the tokenization of real-world assets, such as fraud, money laundering, illegal business operations, pyramid schemes, illegal fundraising, and other illegal and criminal activities carried out under the guise of virtual currency, the tokenization of real-world assets, etc.
（XII） Strengthen Industry Self-discipline. Relevant industry associations should enhance membership management and policy advocacy, based on their own responsibilities, advocate and urge member units to resist illegal financial activities related to virtual currency and the tokenization of real-world assets. Member units that violate regulatory policies and industry self-discipline rules are to be disciplined in accordance with relevant self-regulatory management regulations. By leveraging various industry infrastructure, conduct risk monitoring related to virtual currency, the tokenization of real-world assets, and promptly transfer issue clues to relevant departments.
（XIII） Without the approval of relevant departments in accordance with the law and regulations, domestic entities and foreign entities controlled by them may not issue virtual currency overseas.
（XIV） Domestic entities engaging directly or indirectly in overseas external debt-based tokenization of real-world assets, or conducting asset securitization activities abroad based on domestic ownership rights, income rights, etc. (hereinafter referred to as domestic equity), should be strictly regulated in accordance with the principles of "same business, same risk, same rules." The National Development and Reform Commission, the China Securities Regulatory Commission, the State Administration of Foreign Exchange, and other relevant departments regulate it according to their respective responsibilities. For other forms of overseas real-world asset tokenization activities based on domestic equity by domestic entities, the China Securities Regulatory Commission, together with relevant departments, supervise according to their division of responsibilities. Without the consent and filing of relevant departments, no unit or individual may engage in the above-mentioned business.
(15) Overseas subsidiaries and branches of domestic financial institutions providing Real World Asset Tokenization-related services overseas shall do so legally and prudently. They shall have professional personnel and systems in place to effectively mitigate business risks, strictly implement customer onboarding, suitability management, anti-money laundering requirements, and incorporate them into the domestic financial institutions' compliance and risk management system. Intermediaries and information technology service providers offering Real World Asset Tokenization services abroad based on domestic equity or conducting Real World Asset Tokenization business in the form of overseas debt for domestic entities directly or indirectly venturing abroad must strictly comply with relevant laws and regulations. They should establish and improve relevant compliance and internal control systems in accordance with relevant normative requirements, strengthen business and risk control, and report the business developments to the relevant regulatory authorities for approval or filing.
(16) Strengthen organizational leadership and overall coordination. All departments and regions should attach great importance to the prevention of risks related to virtual currencies and Real World Asset Tokenization, strengthen organizational leadership, clarify work responsibilities, form a long-term effective working mechanism with centralized coordination, local implementation, and shared responsibilities, maintain high pressure, dynamically monitor risks, effectively prevent and mitigate risks in an orderly and efficient manner, legally protect the property security of the people, and make every effort to maintain economic and financial order and social stability.
(17) Widely carry out publicity and education. All departments, regions, and industry associations should make full use of various media and other communication channels to disseminate information through legal and policy interpretation, analysis of typical cases, and education on investment risks, etc. They should promote the illegality and harm of virtual currencies and Real World Asset Tokenization-related businesses and their manifestations, fully alert to potential risks and hidden dangers, and enhance public awareness and identification capabilities for risk prevention.
(18) Engaging in illegal financial activities related to virtual currencies and Real World Asset Tokenization in violation of this notice, as well as providing services for virtual currencies and Real World Asset Tokenization-related businesses, shall be punished in accordance with relevant regulations. If it constitutes a crime, criminal liability shall be pursued according to the law. For domestic entities and individuals who knowingly or should have known that overseas entities illegally provided virtual currency or Real World Asset Tokenization-related services to domestic entities and still assisted them, relevant responsibilities shall be pursued according to the law. If it constitutes a crime, criminal liability shall be pursued according to the law.
(19) If any unit or individual invests in virtual currencies, Real World Asset Tokens, and related financial products against public order and good customs, the relevant civil legal actions shall be invalid, and any resulting losses shall be borne by them. If there are suspicions of disrupting financial order and jeopardizing financial security, the relevant departments shall deal with them according to the law.
This notice shall enter into force upon the date of its issuance. The People's Bank of China and ten other departments' "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation" (Yinfa [2021] No. 237) is hereby repealed.
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China's Central Bank and Eight Other Departments' Latest Regulatory Focus: Key Attention to RWA Tokenized Asset Risk
Foreword: Today, the People's Bank of China's website published the "Notice of the People's Bank of China, National Development and Reform Commission, Ministry of Industry and Information Technology, Ministry of Public Security, State Administration for Market Regulation, China Banking and Insurance Regulatory Commission, China Securities Regulatory Commission, State Administration of Foreign Exchange on Further Preventing and Dealing with Risks Related to Virtual Currency and Others (Yinfa [2026] No. 42)", the latest regulatory requirements from the eight departments including the central bank, which are basically consistent with the regulatory requirements of recent years. The main focus of the regulation is on speculative activities such as virtual currency trading, exchanges, ICOs, overseas platform services, and this time, regulatory oversight of RWA has been added, explicitly prohibiting RWA tokenization, stablecoins (especially those pegged to the RMB). The following is the full text:
To the people's governments of all provinces, autonomous regions, and municipalities directly under the Central Government, the Xinjiang Production and Construction Corps:
Recently, there have been speculative activities related to virtual currency and Real-World Assets (RWA) tokenization, disrupting the economic and financial order and jeopardizing the property security of the people. In order to further prevent and address the risks related to virtual currency and Real-World Assets tokenization, effectively safeguard national security and social stability, in accordance with the "Law of the People's Republic of China on the People's Bank of China," "Law of the People's Republic of China on Commercial Banks," "Securities Law of the People's Republic of China," "Law of the People's Republic of China on Securities Investment Funds," "Law of the People's Republic of China on Futures and Derivatives," "Cybersecurity Law of the People's Republic of China," "Regulations of the People's Republic of China on the Administration of Renminbi," "Regulations on Prevention and Disposal of Illegal Fundraising," "Regulations of the People's Republic of China on Foreign Exchange Administration," "Telecommunications Regulations of the People's Republic of China," and other provisions, after reaching consensus with the Cyberspace Administration of China, the Supreme People's Court, and the Supreme People's Procuratorate, and with the approval of the State Council, the relevant matters are notified as follows:
(I) Virtual currency does not possess the legal status equivalent to fiat currency. Virtual currencies such as Bitcoin, Ether, Tether, etc., have the main characteristics of being issued by non-monetary authorities, using encryption technology and distributed ledger or similar technology, existing in digital form, etc. They do not have legal tender status, should not and cannot be circulated and used as currency in the market.
The business activities related to virtual currency are classified as illegal financial activities. The exchange of fiat currency and virtual currency within the territory, exchange of virtual currencies, acting as a central counterparty in buying and selling virtual currencies, providing information intermediary and pricing services for virtual currency transactions, token issuance financing, and trading of virtual currency-related financial products, etc., fall under illegal financial activities, such as suspected illegal issuance of token vouchers, unauthorized public issuance of securities, illegal operation of securities and futures business, illegal fundraising, etc., are strictly prohibited across the board and resolutely banned in accordance with the law. Overseas entities and individuals are not allowed to provide virtual currency-related services to domestic entities in any form.
A stablecoin pegged to a fiat currency indirectly fulfills some functions of the fiat currency in circulation. Without the consent of relevant authorities in accordance with the law and regulations, any domestic or foreign entity or individual is not allowed to issue a RMB-pegged stablecoin overseas.
（II）Tokenization of Real-World Assets refers to the use of encryption technology and distributed ledger or similar technologies to transform ownership rights, income rights, etc., of assets into tokens (tokens) or other interests or bond certificates with token (token) characteristics, and carry out issuance and trading activities.
Engaging in the tokenization of real-world assets domestically, as well as providing related intermediary, information technology services, etc., which are suspected of illegal issuance of token vouchers, unauthorized public offering of securities, illegal operation of securities and futures business, illegal fundraising, and other illegal financial activities, shall be prohibited; except for relevant business activities carried out with the approval of the competent authorities in accordance with the law and regulations and relying on specific financial infrastructures. Overseas entities and individuals are not allowed to illegally provide services related to the tokenization of real-world assets to domestic entities in any form.
(III) Inter-agency Coordination. The People's Bank of China, together with the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Public Security, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, the State Administration of Foreign Exchange, and other departments, will improve the work mechanism, strengthen coordination with the Cyberspace Administration of China, the Supreme People's Court, and the Supreme People's Procuratorate, coordinate efforts, and overall guide regions to carry out risk prevention and disposal of virtual currency-related illegal financial activities.
The China Securities Regulatory Commission, together with the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Public Security, the People's Bank of China, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the State Administration of Foreign Exchange, and other departments, will improve the work mechanism, strengthen coordination with the Cyberspace Administration of China, the Supreme People's Court, and the Supreme People's Procuratorate, coordinate efforts, and overall guide regions to carry out risk prevention and disposal of illegal financial activities related to the tokenization of real-world assets.
(IV) Strengthening Local Implementation. The people's governments at the provincial level are overall responsible for the prevention and disposal of risks related to virtual currencies and the tokenization of real-world assets in their respective administrative regions. The specific leading department is the local financial regulatory department, with participation from branches and dispatched institutions of the State Council's financial regulatory department, telecommunications regulators, public security, market supervision, and other departments, in coordination with cyberspace departments, courts, and procuratorates, to improve the normalization of the work mechanism, effectively connect with the relevant work mechanisms of central departments, form a cooperative and coordinated working pattern between central and local governments, effectively prevent and properly handle risks related to virtual currencies and the tokenization of real-world assets, and maintain economic and financial order and social stability.
(5) Enhanced Risk Monitoring. The People's Bank of China, China Securities Regulatory Commission, National Development and Reform Commission, Ministry of Industry and Information Technology, Ministry of Public Security, State Administration of Foreign Exchange, Cyberspace Administration of China, and other departments continue to improve monitoring techniques and system support, enhance cross-departmental data analysis and sharing, establish sound information sharing and cross-validation mechanisms, promptly grasp the risk situation of activities related to virtual currency and real-world asset tokenization. Local governments at all levels give full play to the role of local monitoring and early warning mechanisms. Local financial regulatory authorities, together with branches and agencies of the State Council's financial regulatory authorities, as well as departments of cyberspace and public security, ensure effective connection between online monitoring, offline investigation, and fund tracking, efficiently and accurately identify activities related to virtual currency and real-world asset tokenization, promptly share risk information, improve early warning information dissemination, verification, and rapid response mechanisms.
(6) Strengthened Oversight of Financial Institutions, Intermediaries, and Technology Service Providers. Financial institutions (including non-bank payment institutions) are prohibited from providing account opening, fund transfer, and clearing services for virtual currency-related business activities, issuing and selling financial products related to virtual currency, including virtual currency and related financial products in the scope of collateral, conducting insurance business related to virtual currency, or including virtual currency in the scope of insurance liability. Financial institutions (including non-bank payment institutions) are prohibited from providing custody, clearing, and settlement services for unauthorized real-world asset tokenization-related business and related financial products. Relevant intermediary institutions and information technology service providers are prohibited from providing intermediary, technical, or other services for unauthorized real-world asset tokenization-related businesses and related financial products.
(7) Enhanced Management of Internet Information Content and Access. Internet enterprises are prohibited from providing online business venues, commercial displays, marketing, advertising, or paid traffic diversion services for virtual currency and real-world asset tokenization-related business activities. Upon discovering clues of illegal activities, they should promptly report to relevant departments and provide technical support and assistance for related investigations and inquiries. Based on the clues transferred by the financial regulatory authorities, the cyberspace administration, telecommunications authorities, and public security departments should promptly close and deal with websites, mobile applications (including mini-programs), and public accounts engaged in virtual currency and real-world asset tokenization-related business activities in accordance with the law.
(8) Strengthened Entity Registration and Advertisement Management. Market supervision departments strengthen entity registration and management, and enterprise and individual business registrations must not contain terms such as "virtual currency," "virtual asset," "cryptocurrency," "crypto asset," "stablecoin," "real-world asset tokenization," or "RWA" in their names or business scopes. Market supervision departments, together with financial regulatory authorities, legally enhance the supervision of advertisements related to virtual currency and real-world asset tokenization, promptly investigating and handling relevant illegal advertisements.
（IX） Continued Rectification of Virtual Currency Mining Activities. The National Development and Reform Commission, together with relevant departments, strictly controls virtual currency mining activities, continuously promotes the rectification of virtual currency mining activities. The people's governments of various provinces take overall responsibility for the rectification of "mining" within their respective administrative regions. In accordance with the requirements of the National Development and Reform Commission and other departments in the "Notice on the Rectification of Virtual Currency Mining Activities" (NDRC Energy-saving Building [2021] No. 1283) and the provisions of the "Guidance Catalog for Industrial Structure Adjustment (2024 Edition)," a comprehensive review, investigation, and closure of existing virtual currency mining projects are conducted, new mining projects are strictly prohibited, and mining machine production enterprises are strictly prohibited from providing mining machine sales and other services within the country.
（X） Severe Crackdown on Related Illegal Financial Activities. Upon discovering clues to illegal financial activities related to virtual currency and the tokenization of real-world assets, local financial regulatory authorities, branches of the State Council's financial regulatory authorities, and other relevant departments promptly investigate, determine, and properly handle the issues in accordance with the law, and seriously hold the relevant entities and individuals legally responsible. Those suspected of crimes are transferred to the judicial authorities for processing according to the law.
（XI） Severe Crackdown on Related Illegal and Criminal Activities. The Ministry of Public Security, the People's Bank of China, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, as well as judicial and procuratorial organs, in accordance with their respective responsibilities, rigorously crack down on illegal and criminal activities related to virtual currency, the tokenization of real-world assets, such as fraud, money laundering, illegal business operations, pyramid schemes, illegal fundraising, and other illegal and criminal activities carried out under the guise of virtual currency, the tokenization of real-world assets, etc.
（XII） Strengthen Industry Self-discipline. Relevant industry associations should enhance membership management and policy advocacy, based on their own responsibilities, advocate and urge member units to resist illegal financial activities related to virtual currency and the tokenization of real-world assets. Member units that violate regulatory policies and industry self-discipline rules are to be disciplined in accordance with relevant self-regulatory management regulations. By leveraging various industry infrastructure, conduct risk monitoring related to virtual currency, the tokenization of real-world assets, and promptly transfer issue clues to relevant departments.
（XIII） Without the approval of relevant departments in accordance with the law and regulations, domestic entities and foreign entities controlled by them may not issue virtual currency overseas.
（XIV） Domestic entities engaging directly or indirectly in overseas external debt-based tokenization of real-world assets, or conducting asset securitization activities abroad based on domestic ownership rights, income rights, etc. (hereinafter referred to as domestic equity), should be strictly regulated in accordance with the principles of "same business, same risk, same rules." The National Development and Reform Commission, the China Securities Regulatory Commission, the State Administration of Foreign Exchange, and other relevant departments regulate it according to their respective responsibilities. For other forms of overseas real-world asset tokenization activities based on domestic equity by domestic entities, the China Securities Regulatory Commission, together with relevant departments, supervise according to their division of responsibilities. Without the consent and filing of relevant departments, no unit or individual may engage in the above-mentioned business.
(15) Overseas subsidiaries and branches of domestic financial institutions providing Real World Asset Tokenization-related services overseas shall do so legally and prudently. They shall have professional personnel and systems in place to effectively mitigate business risks, strictly implement customer onboarding, suitability management, anti-money laundering requirements, and incorporate them into the domestic financial institutions' compliance and risk management system. Intermediaries and information technology service providers offering Real World Asset Tokenization services abroad based on domestic equity or conducting Real World Asset Tokenization business in the form of overseas debt for domestic entities directly or indirectly venturing abroad must strictly comply with relevant laws and regulations. They should establish and improve relevant compliance and internal control systems in accordance with relevant normative requirements, strengthen business and risk control, and report the business developments to the relevant regulatory authorities for approval or filing.
(16) Strengthen organizational leadership and overall coordination. All departments and regions should attach great importance to the prevention of risks related to virtual currencies and Real World Asset Tokenization, strengthen organizational leadership, clarify work responsibilities, form a long-term effective working mechanism with centralized coordination, local implementation, and shared responsibilities, maintain high pressure, dynamically monitor risks, effectively prevent and mitigate risks in an orderly and efficient manner, legally protect the property security of the people, and make every effort to maintain economic and financial order and social stability.
(17) Widely carry out publicity and education. All departments, regions, and industry associations should make full use of various media and other communication channels to disseminate information through legal and policy interpretation, analysis of typical cases, and education on investment risks, etc. They should promote the illegality and harm of virtual currencies and Real World Asset Tokenization-related businesses and their manifestations, fully alert to potential risks and hidden dangers, and enhance public awareness and identification capabilities for risk prevention.
(18) Engaging in illegal financial activities related to virtual currencies and Real World Asset Tokenization in violation of this notice, as well as providing services for virtual currencies and Real World Asset Tokenization-related businesses, shall be punished in accordance with relevant regulations. If it constitutes a crime, criminal liability shall be pursued according to the law. For domestic entities and individuals who knowingly or should have known that overseas entities illegally provided virtual currency or Real World Asset Tokenization-related services to domestic entities and still assisted them, relevant responsibilities shall be pursued according to the law. If it constitutes a crime, criminal liability shall be pursued according to the law.
(19) If any unit or individual invests in virtual currencies, Real World Asset Tokens, and related financial products against public order and good customs, the relevant civil legal actions shall be invalid, and any resulting losses shall be borne by them. If there are suspicions of disrupting financial order and jeopardizing financial security, the relevant departments shall deal with them according to the law.
This notice shall enter into force upon the date of its issuance. The People's Bank of China and ten other departments' "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation" (Yinfa [2021] No. 237) is hereby repealed.
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