10-05-2026 
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TL;DR: China‘s Ministry of State Security has warned that cryptocurrencies are not beyond the law and their “anonymity” is merely an illusion as Hong Kong regulators expand financial reporting oversight for licensed digital currency firms in a new MOU, while South Korea is thinking of legalizing crypto market makers following JPYC’s surge.
Key Takeaways:
- China’s Ministry of State Security said that cryptocurrency is not beyond the law and that its “anonymity” is a misconception.
- The MSS stated that blockchain records are public and immutable, and that specialized firms can link wallet addresses to real-world users.
- Hong Kong’s SFC and AFRC signed an MoU on September 28 extending reporting oversight to SFC-licensed virtual asset service providers.
- The new MoU supersedes the 2021 agreement and covers information sharing, case referrals, and coordinated inspections.
- South Korea’s FSC is reviewing a formal crypto market-making system after JPYC surged from 12 to 37.6 won on Upbit on September 17.
Crypto not a legal ‘safe haven’ for criminals, China’s Ministry of State Security warns
On September 28, the Chinese Ministry of State Security (MSS) issued a warning claiming that the decentralized, peer-to-peer nature of cryptocurrencies enabled by blockchain technology is a misconception.
The MSS said that the concealed nature of cryptocurrency transactions and the challenge of regulating them have made crypto a tool for criminal activities, which in turn created a range of security risks.
They explained that cryptocurrencies can facilitate money laundering by allowing criminals to conceal and transfer proceeds from telecom fraud, online gambling, cross-border smuggling, and other crimes. They added that bad actors often conceal and move illicit funds across borders by splitting the assets into smaller transactions and routing them via cryptocurrencies. Such activities can circumvent financial controls, complicate national foreign exchange management, and create risks to economic and financial security.
Additionally, the MSS said that cryptocurrencies can act as a shield for cybercriminals, which they warned could be exploited by foreign intelligence agencies to fund espionage activities, conceal illicit payments or to demand ransom payments.
However, the Ministry reiterated that the so-called anonymity of crypto transactions is a misconception.
Although criminals promoted crypto transactions as “anonymous” and “untraceable,” the Ministry reminded that blockchain itself is characterized by transparency and immutable on-chain data. Therefore, the claim of “anonymity” in cryptocurrencies is false, as the Ministry explained: blockchain technology allows transaction records to be preserved and traced throughout the entire transaction process.
The MSS said transactions involving cryptocurrencies are documented on public ledgers, regardless of the transaction amount, timing, or location. Since blockchain uses distributed ledgers, transaction records cannot be erased or modified. While digital currencies like crypto can obscure a user’s identity by displaying wallet addresses instead of names, the MSS said this anonymity is limited and does not guarantee complete identity protection.
In addition, the MSS said specialized organizations can combine on-chain analysis with big data techniques to link wallet addresses to real-world users and trace the movement of funds. Apart from that, the Security Ministry explained that privately held blockchain keys have no recovery mechanism, which means in the event of lost, leaked, or stolen keys, permanent loss of control may happen over virtual assets.
If the private key was entrusted to a trading platform for custody, users may recover account passwords through appeals, but this may also face risks such as the platform going bankrupt or becoming unreachable, the MSS said.
Hong Kong’s SFC and AFRC agreed to expand reporting oversight to licensed crypto firms
In other news about digital currencies, Hong Kong is extending regulatory cooperation oversight to cover licensed digital currency firms.
Following a new Memorandum of Understanding (MoU) released last week, the country’s Securities and Futures Commission (SFC) and the Accounting and Financial Reporting Council (AFRC) agreed to broaden their regulatory cooperation to financial and compliance reporting for SFC-licensed virtual asset service providers (VASPs), SFC-authorized funds, and registered open-ended fund companies.
The new agreement will also be expanded to include related audit and assurance work and establish a comprehensive framework for information sharing, case referrals, mutual assistance, and coordinated inspections and investigations related to mutual regulatory interests.
“This MoU reinforces our shared commitment to reliable financial reporting and high-quality audits. Closer collaboration with the AFRC to cover a broader range of entities and activities in our diverse financial ecosystem will ensure more comprehensive oversight, strengthening market integrity and consolidating Hong Kong’s standing as a trusted international financial centre,” said Dr. Kelvin Wong, Chairman of the SFC.
AFRC Chairman Dr. David Sun said the agreement establishes a clearer framework for coordination, reinforcing efforts to protect the public interest and maintain the resilience and long-term competitiveness of the country’s financial market. Janey Lai said that this agreement will help regulators better identify emerging risks and respond to them more effectively.
“This MoU strengthens regulatory backing for our collaboration with the AFRC, ensuring our supervision evolves with market dynamics. Deepening our regulatory cooperation across financial sub-sectors is essential to upholding the quality of financial reporting and bolstering the confidence of global investors in Hong Kong’s regulatory system,” Julia Leung, Chief Executive Officer (CEO) of the SFC, said.
The agreement supersedes Hong Kong’s 2021 MoU signed by the SFC and the former Financial Reporting Council.
South Korea weighs legalizing crypto market makers following JPYC price surge
Elsewhere, South Korea is reconsidering its digital currency regulations after the price of JPYC surged to over three times its value following its September 17 listing on Upbit. This resulted in the market opening at 12 Korean won ($ 0.0088) per token and climbing to a peak of 37.6 won ($0.028) an hour later, more than 4x its estimated yen-linked market value.
Following the JPYC price surge, South Korea’s Financial Services Commission (FSC) is now reviewing whether to introduce a formal market-making system for digital currency.
FSC Director of digital finance policy, Yoo Young-joon, said the agency would be examining the issue at a Seoul conference.
“We will also review the need to introduce systems such as market-making activities to increase the efficiency and stability of the digital asset landscape,” Yoo said. As criticisms emerged over user losses tied to post-listing price surge, Yoo added that “demands for discipline in this area are expanding.”
Currently, South Korea’s Virtual Asset User Protection Act has no exemption for market-making from its market-manipulation provisions, a rule that bars firms from providing continuous two-sided liquidity, as automated market makers do on other venues.
However, this isn’t a new issue. In 2024, a Seoul Law Review paper by KB Securities researcher Lee Min Jung argued that regulators had previously disallowed crypto market-making due to concerns about manipulation, but suggested a carve-out to be considered once the market matured.
Another paper by Yoonyoung Choi argued that the lack of a formal market-maker system had resulted in serious liquidity problems in South Korea’s local crypto market, citing the recent Kimchi premium issue as evidence of structural inefficiency.
FAQs:
Is cryptocurrency anonymous?
No, not fully. Crypto transactions show wallet addresses instead of names, but they are recorded on public, unalterable ledgers. China’s Ministry of State Security says specialized firms can link wallet addresses to real-world users.
Can crypto transactions be traced?
Yes. Blockchains permanently record every transaction regardless of amount, timing, or location.
What did China’s Ministry of State Security say about crypto?
On September 28, it warned that crypto is not a legal haven for criminals. It said crypto can facilitate money laundering, circumvent financial controls, and be exploited by foreign intelligence agencies.
What is the Hong Kong SFC and AFRC MoU?
It is an agreement signed between Hong Kong’s Securities and Futures Commission and the Accounting and Financial Reporting Council. It extends cooperation on financial reporting and audits to licensed virtual asset firms.
Why is South Korea considering legalizing crypto market makers?
JPYC’s price surged more than threefold after its September 17 listing on Upbit, drawing criticism over user losses. The Financial Services Commission is now reviewing whether market-making could improve market stability.
Is crypto market making legal in South Korea?
Not currently. The Virtual Asset User Protection Act has no market-making exemption from its market manipulation provisions, though the Financial Services Commission is reviewing whether to introduce one.
Watch: What Happens When Blockchain Becomes Invisible?
