China: Citizens warned against investing in NFTs amid growing interest
Chinese regulators continue to view non-fungible tokens (NFTs) with skepticism, with the latest doubt coming from the Supreme People’s Procuratorate of China.
In a publication, the Supreme People’s Procuratorate of China highlighted several risks associated with investing in digital collectibles and urged consumers to stay away from the asset class. The May 15 report noted that NFTs are subject to several illegal vices such as unauthorized fundraising, fraud and price manipulation that put investors at risk.
The absence of proper industry regulations has transformed it into the “wild west” of Web3, which requires immediate action from the authorities, according to the report. Wang Xia-fen, one of the publication’s authors, added that some NFTs in the industry are not even minted on distributed ledgers and are total fakes.
“It is widely recognized that digital collectibles have the potential to protect intellectual property rights, increase content creation and enrich the digital economy,” Wang said. The government “must distinguish between genuine innovation and criminal activity.”
The report offered several solutions, beginning with a comprehensive attack on all criminal activities related to digital collectibles. The report urges law enforcement agencies to work with other agencies to conduct proper investigations of NFT projects to prevent the loss of funds.
NFTs have been on the rise despite a blanket ban on digital currencies in China back in 2021. The Chinese government appears to have given the nod to NFTs in the country, provided users refrain from engaging in speculative trading, a rule that investors have largely ignored.
Rising adoption is having an unintended effect, as the Norwegian Market Regulation Authority confirmed that it recorded 59,700 complaints related to NFTs in 2022. Figures from 2021 amounted to just under 1,000 complaints, with the new peak related to serious issues such as fraud and benign concerns about high transaction fees.
An uproar for the local NFT industry
Investors in China’s NFT space are bracing for sweeping changes in the industry following growing regulatory interest. The first such changes came in December 2022 after a court in Hangzhou confirmed that NFTs can enjoy legal protection under Chinese law as property.
The topic of NFTs featured prominently in China’s Two Sessions meeting as lawmakers around the country pushed for broader regulations for the asset class. While regulators were urged to collaborate on new rules, NFT firms and industry stakeholders were advised to promote “self-discipline and self-regulation” among their ranks.
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