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China’s top prosecution agency warns NFT users of possible economic exploitation through price manipulation
The Chinese government has pushed the country to adopt a digital economy following the COVID-19 pandemic. The country has significantly rolled out the digital yuan to embrace its currency as a global reserve. The digital yuan is expected to greatly help improve the overall liquidity of cryptocurrencies in the Asian continent. Furthermore, Hong Kong is preparing to adopt crypto-friendly regulations next month, which has attracted Chinese banks to invest in crypto startups.
China on the NFT market
According to a theoretical research paper published by the Supreme People’s Procuratorate of the People’s Republic of China, the NFT market needs proper regulations to ensure safe innovation and protect end investors. The blog post, titled “Legal Properties and Risk Governance of NFTs Against the Background of the Digital Economy,” recommended risk research and decision making and punishing offenses accurately. Nevertheless, the post pointed out the importance of NFTs in the development of cultural stock resources.
“As an application of NFTs, digital collectibles themselves have virtual asset characteristics. Blind and haphazard development can easily lead to illegal fundraising, multiple risks such as fraud and malicious promotion should be urgently addressed,” Post noted,
Chinese prosecutors noted that investors should be wary of NFT projects that publicize their projects only to raise funds through events such as ICOs. Notably, the Chinese central bank banned ICOs following the Ethereum ICO promotion, considering it an illegal fundraising practice. Over the years, the People’s Bank of China (PBOC) has issued several restrictions on crypto exchanges among other related activities in its jurisdiction.
According to Chinese prosecutors, NFT makers hide in plain sight through airdrops, blind boxes, limited sales and synthesis. The authors further state that the initial hype of NFTs takes advantage of the fact that there is no proper pricing mechanism and that there is substantial price support behind inflated prices.
With NFT creators able to create a smart contract with regulations capable of collecting taxes per transaction, Chinese prosecutors noted that most NFT projects evolve into illegal pyramid schemes.
As a result, prosecutors urged NFT creators to report every financial activity in accordance with the law in order to prevent NFT-related crimes.
big picture
As the infrastructure for NFTs widens with cryptocurrency adoption, countries around the world are working on devising relevant tax structures. Furthermore, the NFT market is expected to touch several industries including the fashion market, food supply chain, and the automotive industry. In this regard, the overall trade volume and market valuation is expected to skyrocket in the years to come.
However, China has yet to end its stance on crypto assets, despite increasing demand from mainland residents.
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