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Arthur Hayes: BTC Could Fall to $70,000 at Worst, But Bull Market Cycle Still Intact
Original Title: KISS of Death
Original Author: Arthur Hayes
Original Translation: Bitpush News
(The views expressed in this article are those of the author and should not be taken as investment advice, nor interpreted as recommendations or opinions to engage in investment transactions.)
Keep—It—Simple—Stupid = KISS
Many readers, when dealing with the deluge of policies from the US President Donald Trump's administration, often forget the KISS principle.
Trump's media strategy goal is to have you wake up every day and say to your friends, partner, or to yourself, "My goodness, did you see what Trump/Musk/Little Kennedy did yesterday, I can't believe they actually did that." Whether you are in high spirits or feeling down, this farce called "The Emperor's Day" is quite entertaining.
For investors, this ongoing state of excitement is not conducive to stacking sats. You may buy in today, only to quickly sell out after digesting the next headline news. The market oscillates throughout this process, rapidly depleting your Bitcoin reserves.
Remember the KISS principle.
Who is Trump? Trump is a real estate showman. To succeed in real estate, you must master the art of borrowing large sums of money at the lowest possible interest rates. Then, to sell condo units or rent out space, you must boast about how impressive the new building or development project is. I am not interested in Trump's ability to evoke sympathy in global society, but I am interested in his ability to finance policy objectives.
I am convinced Trump wants to achieve his "America First" policy through debt financing. If not, he would allow the market to naturally clear the credit embedded in the system, ushering in an even more severe economic depression than that of the 1930s. Is Trump seeking to be called the Herbert Hoover of the 21st century or the Franklin Delano Roosevelt (FDR)? American history belittles Hoover because historians believe he did not print money fast enough and praises FDR because his New Deal policies were paid for with printed money. I believe Trump wants to be considered the greatest president in history, so he does not want to destroy the empire's foundation through a contractionary policy.
To emphasize this point, remember that Andrew Mellon, the U.S. Secretary of the Treasury under Hoover, once said the following when discussing how to address the over-leveraging of the U.S. and global economy after a stock market crash:
“Liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate. It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people.”
Current U.S. Treasury Secretary Scott Bessent is unlikely to make such bold statements.
If my view is correct that Trump will pursue “America First” through debt financing, how does this affect my outlook on future global risk asset markets, especially cryptocurrency?
To answer this question, I must form an opinion on how Trump may increase the money/credit supply (i.e., printing money) and lower its price (i.e., interest rates). Therefore, I must have a view on how the relationship between the U.S. Treasury led by Scott Bessent and the Federal Reserve led by Jerome Powell may evolve.
KISS Principle
Who do Bessent and Powell serve? Are they the same person?
Bessent was appointed by Trump 2.0, and from his past and present interviews, he seems to align closely with this “emperor’s” worldview.
Powell was appointed by Trump 1.0 but has been a fickle turncoat, switching sides to the Obama and Clinton camps. When Powell aggressively cut rates by 0.5% in September 2024, destroying what little credibility he had left, the U.S. economy was growing above trend and inflationary pressures were present, making a rate cut unnecessary. However, the Obama-Clinton puppet Kamala Harris needed a boost, and Powell dutifully cut rates. The outcome did not pan out as expected, but after Trump's reelection, Powell announced he would fulfill his term and once again staunchly fight inflation.
When you carry a large debt burden, several things happen.
First, interest payments consume most of your free cash flow. Second, you cannot secure additional asset financing because no one will lend to you given the high debt levels. Therefore, you must restructure your debt, extending maturities and lowering coupon rates. This is a form of soft default as it mathematically reduces the present value burden of the debt. Once your effective debt burden is reduced, you can again borrow at an affordable price. Viewing the issue from these angles, both the Treasury and the Fed play a role in restoring American financial health. However, due to Bessent and Powell serving different masters, the success of this effort has been hindered.
Debt Restructuring
Bessent publicly stated that the current debt structure in the United States needs to change. He hopes to eventually extend the average term of the debt burden, known on Wall Street as "debt maturity extension." Various macroeconomic experts have proposed suggestions on how to achieve this goal; I discussed such solutions in detail in The Genie article. However, for investors, the most important thing is that the United States will soft default on its debt burden by reducing the net present value.
Given the global distribution of U.S. debt holders, achieving this kind of restructuring will take time. This is a geopolitical "Gordian Knot." Therefore, in the short term, within the next three to six months, this is unrelated to our cryptocurrency inventors.
New Loans
Powell and the Federal Reserve have broad control over the quantity and pricing of credit. The law allows the Fed to print money to purchase debt securities, thereby increasing the money/credit supply, i.e., printing money. The Fed also sets short-term rates. Since the U.S. cannot default on the nominal dollar, the Fed determines the risk-free rate of the dollar, i.e., the Effective Federal Funds Rate (EFFR).
The Fed has four main levers to manipulate the short-term rate: Reverse Repurchase Agreements (RRP), Interest on Reserve Balances (IORB), the Federal Funds Rate floor, and the Federal Funds Rate ceiling. Without delving into the intricate details of the money market, all we need to understand is that the Fed can unilaterally increase the quantity of dollars and lower their price.
If Bessent and Powell were serving the same Leader, then analyzing the future path of dollar liquidity and the reactions of China, Japan, and the EU to U.S. monetary policy would be very easy. As they are clearly not serving the same person, I wonder how Trump can allow Powell to stick to the Fed's task of fighting inflation while still manipulating Powell to print money and lower rates.
Economic Collapse
Fed - Recession Law: If the U.S. economy enters a recession, or if the Fed fears the U.S. economy will enter a recession, it will cut rates and/or print money.
Let's test this law with recent economic history (thanks to the excellent table provided by Bianco Research).
This is a direct cause list of modern U.S. economic recessions post-World War II. A recession is defined as a negative quarterly GDP growth rate. I will focus on the 1980s to the present.
This is a chart of the Federal Funds Rate Lower Bound. Each red arrow represents the beginning of an easing cycle coinciding with a recession. As you can see, it is very clear that the Federal Reserve will at least cut rates during a recession.
Fundamentally, "Pax Americana" and its dominance of the global economy are built on debt financing. Large corporations fund future production expansion and current operations by issuing bonds. If cash flow growth significantly slows down or declines entirely, the repayment of debt eventually comes into question. This is problematic because a significant portion of a company's debt is essentially an asset to banks. The corporate debt assets held by banks support their customer deposit liabilities. In essence, if debt cannot be repaid, it calls into question the "value" of all existing legal credit banknotes.
Furthermore, in the United States, most households are leveraged. Their consumption patterns are marginally financed with mortgage loans, car loans, and personal loans. If their cash flow generation capability slows down or diminishes, they will be unable to meet their debt obligations. Similarly, the banking system holds this debt and supports it with their deposit liabilities.
It is crucial that the Federal Reserve does not allow a significant rise in default probabilities for corporate and/or household debt during an economic recession or before cash flow generation slows down or contracts. This could lead to corporate and consumer debt defaults, resulting in systemic financial distress. To safeguard the solvency of a debt-financed economic system, whenever a recession occurs or people's perception of recession risk intensifies, the Federal Reserve will proactively or reactively cut rates and print money.
KISS Principle
Trump manipulates Powell to ease the financial environment by triggering a recession or making the market believe that a recession is imminent.
To avoid a financial crisis, Powell will subsequently take the following partial or full measures: rate cuts, ending quantitative tightening (QT), restarting quantitative easing (QE), and/or suspending the Supplementary Leverage Ratio (SLR) for banks buying U.S. Treasuries.
Insert a chart from DOGE here:
How Can Trump Unilaterally Trigger a Recession?
The marginal driver of U.S. economic growth has always been the government itself. Whether the spending is fraudulent or necessary, government expenditures create economic activity. Additionally, government spending has a money multiplier effect. That's why the Washington D.C. metropolitan area is one of the wealthiest regions in America because there are plenty of professional parasites feeding off the government. It's challenging to estimate the exact money multiplier directly, but in concept, it's easy to understand the delayed effects of government spending.
According to Perplexity's data:
● The median household income in Washington D.C. is $122,246, much higher than the national median household income.
● This places Washington D.C. at the 96th percentile in U.S. cities by median household income.
As a former president, Trump is well aware of the extent of fraud, waste, and abuse within the government. The establishment of both parties does not want to curb this situation as everyone benefits from it. Considering Trump supporters are outside of the Democrats and Republicans, they unreservedly expose the flaws in government spending plans. Establishing an advisory council led by Elon Musk and backed by Trump, named the Department of Government Efficiency (DOGE), is a key driver in significantly reducing government spending.
When many of the largest expenditure items are non-discretionary spending, how does DOGE achieve this? If payments are fraudulent, they can be stopped. If computers can replace government employees managing these projects, the human resource costs will plummet. The question then becomes, how much fraud and inefficiency is there in government spending each year? If DOGE and Trump are to be believed, the annual amount would reach trillions of dollars.
One potentially very visible example is the Social Security Administration (SSA) and who they send checks to. If we believe DOGE's claims, the department is issuing trillions of dollars to deceased individuals and persons whose identities have not been properly verified. I do not know the veracity of these claims. But imagine you are an SSA welfare fraudster and know that Elon and the "big shots" are deeply analyzing the data, potentially uncovering the fraudulent payments you have received over the years and submitting them to the Department of Justice. Would you continue your scheme or flee? The key is that the mere threat of discovery could lead to a reduction in fraudulent activities. As the old Chinese saying goes, kill the chicken to scare the monkey. Therefore, even though the establishment media is trying to hoodwink Elon and DOGE, I believe that even if it's not trillions of dollars, it's likely hundreds of billions of dollars.
Next, let's discuss the human resources aspect of the government spending equation. Trump and DOGE are in the process of laying off hundreds of thousands of government employees. Whether unions have enough power to legally challenge the mass removal of "non-essential" government workers remains to be seen. But the consequences are already apparent.
DeAntonio explains, "So far, the workforce reductions we've seen may only be the tip of the iceberg. The scale and timing of future layoffs will determine whether the labor market can remain stable. We currently anticipate that due to ongoing hiring freezes, delayed retirements, and layoffs initiated by DOGE, the number of federal government employees is expected to decrease by approximately 400,000 by 2025."
– Fox Business
Even though the Trump 2.0 presidential term has just begun a little over a month ago, the impact of DOGE is already evident. Unemployment claims in the Washington D.C. area have surged. Housing prices have plummeted. And consumer discretionary spending, arguably driven by widespread government fraud and malfeasance, has also left financial analysts disappointed. The market is starting to talk about the "R" word — recession.
A new analysis by real estate transaction platform Parcl Labs shows that since the beginning of this year, housing prices in the Washington D.C. area have dropped by 11%, with the analysis tracking the effects of the Department of Government Efficiency (DOGE) on the city's real estate market.
– Newsweek
Rothstein posted on Bluesky stating that due to massive government layoffs and abrupt cancellation of federal contracts, the U.S. is almost certain to head towards a severe economic recession.
– The Economic Times
The "R" word is an economic disgrace. Powell does not want to be a modern-day Hester Prynne (subjected to public shame and condemnation), thus, he must respond.
Powell's Pivot Again
How many times has Powell pivoted since 2018? He must be feeling quite dizzy by now. The question for investors is whether Powell will act preemptively to save the financial system from collapse or only react after a major financial institution has gone bankrupt. Powell's chosen path is purely political. Therefore, I cannot predict.
But what I do know is that this year, $2.08 trillion of U.S. corporate debt and $10 trillion of U.S. national debt need to be rolled over. If the U.S. is on the brink of or in a recession, the cash flow shock would make it nearly impossible to roll over these massive bonds at current interest rates. Therefore, to uphold the sanctity of the "American peace" financial system, the Fed must and will act.
For us cryptocurrency investors, the question is how fast and at what scale will the U.S. unleash credit? Let's break down the four key measures the Fed will take to turn the tide.
Rate Cut
It is estimated that for every 0.25% reduction in the federal funds rate, it is equivalent to $100 billion in quantitative easing or money printing. Assuming the Fed lowers the rate from 4.25% to 0%.
This is equivalent to $1.7 trillion of quantitative easing. Powell may not lower the rate to 0%, but you can be sure Trump will allow Elon to continue cutting expenses until Powell lowers the rate to the desired level. Once the acceptable rate level is reached, Trump will control his "mad dog."
Stop Quantitative Tightening (QT)
The recently released Fed minutes from the January 2025 meeting detail that some committee members believe quantitative tightening must end at some point in 2025. Quantitative tightening is the Fed's process of reducing the size of its balance sheet, thereby reducing the amount of US dollar credit. The Fed is conducting $600 billion of quantitative tightening each month. Assuming the Fed takes action in April, this means that relative to previous expectations, stopping quantitative tightening will inject $540 billion of liquidity into 2025.
Restart Quantitative Easing (QE) / Supplementary Leverage Ratio (SLR) Exemption
To absorb the supply of US Treasuries, the Fed can restart quantitative easing and grant banks a supplementary leverage ratio exemption. Through quantitative easing, the Fed can print money and purchase Treasuries, thereby increasing the credit quantity. The supplementary leverage ratio exemption allows US commercial banks to use unlimited leverage to purchase Treasuries, thereby increasing the credit quantity. The key is that both the Fed and the commercial banking system are allowed to create money out of thin air. Restarting quantitative easing and granting a supplementary leverage ratio exemption are decisions that only the Fed can make.
If the federal deficit stays in the range of $1 trillion to $2 trillion per year, and the Fed or banks absorb half of the new issuance, this means the annual money supply will increase by $500 billion to $1 trillion. A 50% participation rate is conservative, as during COVID-19, the Fed bought 40% of the new issuance. Nevertheless, in 2025, a major exporting country (China) or an oil-producing country (Saudi Arabia) has ceased or significantly slowed down their behavior of using dollar surpluses to buy Treasuries; therefore, the Fed and banks have more maneuvering room.
Let's do the math:
Rate Cut: $1.7 trillion + Stop Quantitative Tightening: $0.54 trillion + Restart Quantitative Easing/SLR Exemption: $500 billion to $1 trillion = Total = $2.74 trillion to $3.24 trillion
COVID-19 vs. DOGE Money Printing
In the United States alone, the Fed and the Treasury created approximately $4 trillion in credit from 2020 to 2022 to address the Covid-19 pandemic.
The DOGE-inspired money printing scale could reach 70% to 80% of the level seen during the COVID-19 pandemic.
With the U.S. alone printing $4 trillion, Bitcoin surged approximately 24x from its 2020 low to 2021 high. Considering Bitcoin's market cap is much larger now than it was then, let's conservatively call a 10x surge in the U.S. alone printing $3.24 trillion as an increase. That's the answer for those wondering how Bitcoin could reach $1 million during President Trump's term.
Several Key Assumptions
Even amidst the current market turmoil, I have painted a very optimistic future outlook for Bitcoin. Let's look at my assumptions so readers can judge for themselves whether these assumptions are reasonable.
Trump will achieve "America First" through debt financing.
Trump is using DOGE as a means to clear out politically addicted to fraudulent income sources, reduce government spending, and increase U.S. government spending to slow down the possibility of a recession.
The Fed will take a series of actions before or after a recession, increasing the money supply and lowering the price of money.
It's up to your worldview to decide whether this is reasonable.
U.S. Strategic Reserve
Waking up on Monday morning, I saw the Trump rally kick off. On Truth Social, Trump reiterated that the U.S. will establish a strategic reserve filled with Bitcoin and a bunch of junk coins. The market surged due to the "news." This is nothing new, but the market will view Trump's reiteration of his cryptocurrency policy intentions as an excuse for a violent dead cat bounce.
If this reserve is to have a positive impact on prices, the U.S. government needs the ability to physically buy these cryptocurrencies. There is no secret stash of dollars waiting to be deployed. Trump needs the help of Republican lawmakers to raise the debt ceiling and/or revalue gold to match current market prices. These are the only two ways to fund a strategic cryptocurrency reserve. I'm not saying Trump won't keep his promise, but the timeframe for when purchases might start could be longer than how long traders can hold on before getting liquidated. Therefore, sell on rallies.
Trading Strategy
Bitcoin and the broader cryptocurrency market are the only truly global free markets in existence. Bitcoin's price in real-time tells the world how global society views the current state of fiat currency liquidity. Bitcoin reached a high of $110,000 on the eve of Trump's coronation in mid-January, touching a local low of $78,000, representing a drop of around 30%. Bitcoin is screaming, and a liquidity crisis is looming, even as U.S. stock market indices remain near all-time highs. I believe Bitcoin's signal, therefore, a severe pullback in the U.S. stock market driven by recession concerns is imminent.
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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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