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Arthur Hayes New Article: How Will Dollar Liquidity Drive the Next Bull Market in Crypto by 2025?
Original Author: Arthur Hayes, Chief Investment Officer of Maelstrom Fund, Co-Founder and former CEO of BitMEX
Original Translation: zhouzhou, BlockBeats
Editor's Note: In this article, Hayes analyzes how USD liquidity impacts the cryptocurrency market, especially Bitcoin's trend. By explaining the Federal Reserve's Reverse Repurchase Agreement (RRP) and the US Treasury General Account (TGA) fund flows, he discusses how increased USD liquidity drives the rise of the cryptocurrency and stock markets. Approximately $612 billion of USD liquidity will be injected into the market in Q1 2025, which may have a positive impact. Finally, the author mentions that the Maelstrom Fund is investing in the DeFi space and holds a bullish outlook for the future market.
The following is the original content (slightly rearranged for better readability):
The remote area ski entrance at a Hokkaido skiing resort provides excellent terrain, mostly accessible by gondola. At the beginning of each year, the most concerning question for skiing enthusiasts is whether there is enough snow cover to open these entrances. For skiers, a major challenge is "Sasa," which is the Japanese term for a type of bamboo plant.
This plant has stems as thin as reeds, but its leaves are as sharp as knives, capable of cutting the skin if not careful. Skiing on "Sasa" is very dangerous because your ski edges may slip, leading to what I call a dangerous game of "man vs. tree." Therefore, if the snow is not enough to cover the "Sasa," skiing in remote areas becomes highly risky.
This year, Hokkaido has seen record snowfall levels in nearly 70 years, with astonishingly deep powder snow. As a result, the backcountry ski entrances opened at the end of December, whereas in previous years, they typically opened in the first or second week of January.
As 2025 approaches, investors' focus has shifted from skiing to the crypto market, particularly on whether the "Trump Rally" can continue. In my latest article "Trump Truth," I suggest that the market's high expectations for Trump camp policy actions may lead to disappointment and have a negative impact on the short-term market. However, at the same time, I must also weigh the stimulating effect of USD liquidity.
Currently, Bitcoin's trend fluctuates with the pace of USD release, with the Fed and the US Treasury's financial elites holding the power to decide the amount of USD supplied to the global financial market, which is a key factor influencing the market.
Bitcoin hit bottom in the third quarter of 2022, at which time the Fed's Reverse Repurchase Agreement (RRP) reached its peak. Under the guidance of U.S. Treasury Secretary Yellen (aka "Bad Girl Yellen"), the U.S. Treasury reduced the issuance of long-term coupon bonds while increasing the issuance of short-term zero-coupon bonds, thereby draining over $2 trillion from the RRP.
This effectively injected liquidity into the global financial markets. Cryptocurrencies and the stock market, especially large-cap U.S. tech stocks, consequently surged. From the chart above, you can see the relationship between Bitcoin (left axis, yellow) and RRP (right axis, white, reversed): as RRP decreases, Bitcoin's price rises.
In the first quarter of 2025, the question I am trying to answer is whether the positive stimulus in U.S. dollar liquidity can overshadow any potential disappointment in the implementation speed and effectiveness of Trump's so-called "pro-crypto" and "pro-business" policies. If so, market risks should become relatively manageable, and the Maelstrom Fund should also increase its risk exposure.
First, I will discuss the Fed, which is a minor factor in my analysis. Subsequently, I will focus on how the U.S. Treasury is addressing the debt ceiling issue. If politicians drag their feet on raising the debt ceiling, the Treasury will tap into its General Account (TGA) funds at the Fed, injecting liquidity into the market and creating positive momentum for the crypto market.
For brevity, I will not go into detail on how RRP and TGA lending separately have negative and positive impacts on U.S. dollar liquidity. Please refer to the article "Teach Me, Daddy" to understand the specific mechanisms of these operations.
Federal Reserve
The Fed's Quantitative Tightening (QT) policy is progressing at a pace of $600 billion per month, meaning its balance sheet size is shrinking. Currently, there has been no change in the Fed's forward guidance on the speed of QT, which I will explain in the subsequent parts of the article, but my prediction is that the market will peak in mid to late March, thereby drawing out $1800 billion in liquidity.
The Reverse Repurchase Agreement (RRP) has almost dropped to zero, and in order to fully deplete the funds in this facility, the Fed has been reluctant to adjust the RRP policy rate. At the December 18, 2024 meeting, the Fed lowered the RRP rate by 0.30%, exceeding the policy rate cut by 0.05%. This move aims to link the RRP rate to the federal funds rate (FFR) floor.
If you want to understand why the Fed waited until the RRP was nearly depleted to adjust the rate to the floor of the FFR, reducing the attractiveness of depositing funds into the RRP, I suggest reading Zoltan Pozar's article "Cheating on Cinderella". The conclusion I drew from this article is that the Fed is exhausting all tools to enhance demand for U.S. Treasury issuance, seeking to avoid stopping QT, providing a supplementary leverage ratio exemption for U.S. branches of foreign banks again, or restarting quantitative easing (QE), i.e., the "money printer restart."
Currently, there are two liquidity pools that will help suppress the rise in bond yields. For the Fed, the 10-year U.S. Treasury yield must not exceed 5%, as this level would trigger a significant increase in bond market volatility (MOVE index). As long as there is liquidity in the RRP and the Treasury General Account (TGA), the Fed does not need to make significant adjustments to its monetary policy or acknowledge that a fiscal dominance situation is unfolding.
Fiscal dominance would fundamentally make Powell's position subservient to "bad girl Yellen," and after January 20, it would be subservient to Scott Bessent. As for Scott, I haven't thought of a suitable nickname for him yet. If his decisions turn me into a modern-day Scrooge McDuck due to the devaluation of the dollar against gold, I will give him a more endearing nickname.
Once the Treasury General Account (TGA) is depleted (positive for U.S. dollar liquidity) and subsequently replenished after hitting the debt ceiling (negative for U.S. dollar liquidity), the Fed will exhaust its emergency measures, unable to prevent the inevitable further rise in yields following the easing cycle that began in September last year.
This has a minimal impact on the U.S. dollar liquidity situation in the first quarter, just a contemplation of how Fed policy might evolve during the year if yields continue to rise.
The Federal Funds Rate ceiling (FFR, right axis in the chart, white, inverted) and the U.S. 10-year Treasury yield (left axis, yellow) clearly show that when the Fed faces an inflation rate above its 2% target and cuts rates, bond yields rise instead.
The real issue is the rapid decline of Reverse Repurchase Agreement (RRP) from around $237 billion to zero. I expect RRP to approach zero at some point in the first quarter, as Money Market Funds (MMFs) withdraw funds and purchase higher-yielding Treasury bills to maximize returns. It is important to note that this implies a $237 billion injection of USD liquidity in the first quarter.
Following the RRP rate change on December 18th, the yield on Treasury bills maturing within 12 months has exceeded 4.25% (white), which is the Federal Funds Rate floor.
The Federal Reserve will reduce liquidity by $180 billion through Quantitative Tightening (QT), and the adjustment of the incentive rate by the Fed leading to a decrease in RRP balances will further drive an additional $237 billion liquidity injection. This collectively means a net liquidity injection of $570 billion.
Treasury Department
'Bad Girl' Yellen has informed the market that she expects the Treasury Department to commence 'extraordinary measures' between January 14th and 23rd to fund the U.S. government. The Treasury Department has two options to pay government bills: either issue debt (negative impact on USD liquidity) or draw funds from its Treasury General Account (TGA) at the Fed (positive impact on USD liquidity).
As the total debt cannot be increased until Congress raises the debt ceiling, the Treasury Department can only draw funds from its TGA. Currently, the TGA balance stands at $722 billion. The first big question is when will lawmakers agree to raise the debt ceiling. This will be a crucial test of Trump's support within the Republican legislature. Remember his governance margin—Republicans hold a very slim majority over Democrats in both the House and the Senate.
Some Republicans like to puff their chests out and grandstand. Every time the debt ceiling issue is brought up, they claim to care about shrinking the size of the bloated government. They will delay the vote to increase the debt ceiling until they secure some hefty returns for their districts.
Trump has failed to convince them that if the debt ceiling is not raised, he will veto the spending bills at the end of 2024. Democrats, after experiencing a 'transgender bathroom'-style disaster in the last election, are unlikely to help Trump unlock government funds to achieve his policy objectives.
Harris in 2028, anyone interested? In fact, the Democratic presidential nominee will be the silver-haired man Gavin Newsom. Therefore, to advance affairs, Trump will wisely not bring up the debt ceiling issue until absolutely necessary before proposing any legislation.
When failing to raise the debt ceiling could lead to a technical default on national debt or a full government shutdown, raising the debt ceiling becomes crucial. Based on the Treasury's 2024 budget data, I estimate this situation will occur between May and June this year, at which point the TGA balance will be fully depleted.
Visualizing the speed and intensity of TGA (Treasury General Account) usage can help predict the moment of maximum impact of fund usage, as the market is forward-looking. Given these data are all public, and we know that when the Treasury cannot increase the total U.S. debt and the account is nearing depletion, the market will seek new sources for USD liquidity. At a utilization rate of 76%, March seems to be the moment when the market will ask, "What's next?"
If we add up the total USD liquidity amounts from the Fed and the Treasury to the end of the first quarter, it amounts to $612 billion.
What Will Happen Next?
Once default and shutdown loom, a last-minute agreement will be reached, and the debt ceiling will be raised. By then, the Treasury will be able to borrow again in a net borrowing manner and will have to refill the TGA. This will have a negative impact on USD liquidity.
Another important date in the second quarter is April 15, the tax deadline. As seen in the table above, government finance improves significantly in April, which is negative for USD liquidity.
If the factor affecting the TGA balance is the sole determinant of cryptocurrency prices, then I expect a local market top to occur by the end of the first quarter. In 2024, Bitcoin reached a local high of around $73,000 in mid-March, then entered a consolidation phase and began a months-long decline before April 11, just prior to the tax deadline.
Trading Strategy
The issue with this analysis is that it assumes USD liquidity is the most critical marginal driver of global legal tender liquidity. Here are some other considerations:
· Will China accelerate or decelerate the creation of Renminbi credit?
· Will the Bank of Japan start raising interest rates, causing USD-JPY to appreciate and unlocking leveraged carry trades?
· Will Trump and Bennett conduct large-scale overnight devaluation of the USD relative to gold or other major legal tender currencies?
· How efficient is the Trump team in rapidly reducing government spending and passing bills?
These key macroeconomic issues cannot be predetermined, but I am confident in the mathematical model of how RRP and TGA balances evolve over time. My confidence has been further validated, especially from September 2022 to the present market performance: as RRP balances decreased, the increase in dollar liquidity directly led to the rise of cryptocurrency and stocks, despite the Fed and other central banks hiking rates at the fastest pace since the 1980s.
FFR Ceiling (right, green) compared to Bitcoin (right, magenta) and S&P 500 Index (right, yellow) against RRP (left, white, inverted). Bitcoin and stocks bottomed in September 2022 and rebounded on the decline of RRP, injecting over $2 trillion of dollar liquidity into the global markets. This was a deliberate policy choice by the "Bad Girl" Yellen to siphon off RRP by issuing more treasuries. Powell's financial tightening actions to address inflation have completely backfired.
Despite various warnings, I believe I have answered the initial question I posed. That is, the disappointment from the failure of the Trump team to deliver on its proposed legislation supporting cryptocurrency and business can be offset by an extremely positive dollar liquidity environment, with the first-quarter dollar liquidity increase peaking at $612 billion.
As almost every year like clockwork, as planned, the end of the first quarter will be a time to sell, take a break, go to the beach, nightclubs, or ski resorts in the Southern Hemisphere, waiting for a turnaround in third-quarter dollar liquidity conditions.
As the Chief Investment Officer of Maelstrom, I will encourage risk takers in the fund to adjust their risk to "DEGEN" (extreme risk) mode. The first step towards this direction is our decision to venture into the emerging field of Decentralized Science (DeSci). We like undervalued meme coins and have bought BIO, VITA, ATH, GROW, PSY, CRYO, NEURON.
If you want to delve deeper into why Maelstrom believes the DeSci narrative may be repriced higher, please read "Degen DeSci". If things go as smoothly as I described, I will recalibrate benchmarks in March and enter the "909 Open High Hat" phase. Of course, anything can happen, but overall, I am bullish.
Perhaps Trump's market sell-off will occur between mid-December 2023 and the end of 2024, rather than mid-January 2025. Does that mean I'm sometimes a lousy prophet? Yes, but at least I can absorb new information and opinions and adjust to them before they lead to significant losses or missed opportunities.
This is why the investment game is intellectually engaging. Imagine how dull life would be if you hit a hole-in-one every time you swung, made every three-pointer in basketball, or sank every shot in pool.
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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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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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