On February 26, 2026, the Supreme People's Court clearly stated in its position on governance related to telecom network fraud that it would prioritize combating money laundering activities using virtual currency as a key focus in the fight against crimes associated with telecom fraud. This upgrade in judicial stance is widely viewed in the industry as the latest high-pressure signal released in China's cryptocurrency sector since the "9·24 notice" in 2021. Behind the shift from financial regulation to criminal justice is the inherent anonymity and cross-border convenience of cryptocurrencies, which directly conflicts with China's goal of a "full-chain crackdown" on telecom network fraud. A crucial question has begun to emerge around this new signal: To what extent will China's upgraded crackdown on crypto-related crimes reshape the behavioral boundaries of domestic users, project parties, and the gray industrial chain?
From 924 to Criminal High Pressure: Upgrade of Virtual Currency Regulatory Discourse
● In 2021, the central bank and ten other ministries jointly issued the "Notice on Further Preventing and Handling Risks of Speculative Trading in Virtual Currency" (commonly referred to as the "9·24 notice"), which defined "the business activities related to virtual currency as illegal financial activities" as a key statement, completing the administrative classification of a whole set of businesses such as trading facilitation, fiat currency in-and-out, and token issuance, laying the foundation for subsequent governance.
● After this, the regulatory path experienced a phase of "de-channeling, de-leveraging" from a financial perspective: on the one hand, exchanges and payment institutions were cut off from direct connections to the domestic financial system, and on the other hand, repeated warnings about "speculation risks" largely remained at the level of administrative regulation and risk prevention. Now, the Supreme Court has directly incorporated virtual currency money laundering into the key focus of telecom fraud combat, marking an upgrade from financial regulation priority to judicial criminal priority.
● The uniqueness of this statement lies in the fact that virtual currency money laundering is not classified generically as general economic crime but is handled alongside high political-priority fields such as "telecom network fraud and violent crime." This means that throughout the entire process of filing cases, investigations, and sentencing, relevant actions may be subject to a higher intensity of scrutiny, and law enforcement agencies now have a clearer bias in resource allocation and case selection.
● Changes in regulatory discourse will also directly affect factual determinations and legal applications in judicial rulings: when "using virtual currency to aid the transfer of fraud funds" is clearly defined as a key target of crackdown, the prosecuting authorities will increasingly reference such policy statements when distinguishing between general investment behavior and “aiding information network criminal activities,” forming new judicial precedents and leaving room for the emergence of subsequent typical cases.
Telecom Fraud Funds Shift to On-Chain: How Virtual Currency Becomes a "Gray Channel"
● Practically speaking, telecom fraud gangs often complete the "on-chain" transfer of funds through multilayer paths: the front end receives cash or bank card payments from so-called "score-running" personnel off-exchange, then purchases tokens like USDT through OTC channels; subsequently, the tokens are transferred to wallet addresses controlled overseas, where after multiple intermediations, splits, and mixes, they are eventually redeemed as fiat currency in overseas exchanges, achieving fund escape and dispersal.
● Virtual currency is considered the core of the telecom fraud fund's "gray channel" because its cross-border transfer does not rely on traditional banking channels, and on-chain addresses inherently possess pseudo-anonymity characteristics. As long as basic operations are grasped, funds can complete transitions across judicial jurisdictions in a matter of minutes, significantly weakening the efficiency of traditional regulatory and investigation models that rely on account freezing and interbank cooperation, which is also one of the direct reasons why judicial departments are focusing on this area as a new priority.
● Market interpretations generally believe that this "gray channel" attribute will face stricter judicial scrutiny. The Planet Daily specifically noted that the role of virtual currency in cross-border fund transfers will be closely examined, meaning that not only those who overtly assist in laundering fraud funds but also service providers that undertake fund transfers and intermediary functions could be placed in more sensitive positions, requiring a reassessment of compliance boundaries in their business models.
● Compared with traditional underground money houses, using virtual currency for money laundering differs in technological form but is highly similar in functionality: both provide covert channels to evade regulation and escape capital controls. The difference lies in that on-chain transfers leave traceable data footprints, but confirming the relationship between physical identity and address is more reliant on technical evidence and cross-border collaboration, which both provides law enforcement with new tools and creates higher thresholds and longer tracking routes.
Amplified Judicial Signals: From Commentary Interpretation to Practical Implementation
● Industry media widely view this statement from the Supreme Court as a significant turning point. Jinse Finance remarked that this is the clearest signal from the judicial system regarding the crackdown on cryptocurrency-related crimes since the 2021 "9·24 notice," with its importance lying in upgrading the previously risk prevention-focused regulatory language to a "criminal crackdown priority" judicial discourse, providing prosecuting authorities with more legitimate and clear policy bases for their actions.
● The Planet Daily pointed out from the perspective of the funding chain that the "gray channel" property of virtual currency in cross-border fund transfers may face stricter judicial scrutiny, indicating that policies are more aimed at on-chain money laundering and cross-border cash arbitrage scenarios rather than denying all typical holding behaviors outright. In other words, the judicial focus is on "links highly associated with telecom fraud and money laundering," rather than simply the asset holding itself.
● As the judicial tone tightens, the boundary between "ordinary transactions" and "aiding information network criminal activities" will become a key challenge in practice. Theoretically, factors such as whether one is aware of the abnormal source of funds, whether there are frequent interactions with high-risk addresses, and whether there are apparent "fees" that do not match the services provided may all become important references for determining "whether it constitutes assistance," but how this is specifically applied remains to be seen through subsequent judicial interpretations and case accumulation.
● As for some expressions mentioned in public discourse such as "increasing the application of property penalties," these still belong to unverified policy signals. In the absence of authoritative original texts and detailed standards, excessive extrapolation of the scope and scale of property penalties, such as confiscation, recovery, and fines, not only carries a risk of misleading but may also amplify market panic, necessitating ongoing tracking of formal documents and typical judgments in this field, rather than emotional judgments based on second-hand interpretations.
Pressure Testing for Exchanges and OTC: Compliance Game of On-Chain Business
● In a high-pressure judicial environment, the first to feel the impact will be OTC USDT merchants and various intermediaries providing on-chain bridging services. As a critical entry point for telecom fraud funds entering the on-chain world from the fiat currency realm, if OTC merchants provide services while knowing or should know the abnormal source of customer funds under conditions where"KYC is practically non-existent," they may face the real risk of administrative penalties escalating to criminal liability, necessitating a reassessment of their business models.
● For cross-border exchanges, market makers, and domestic users, the in-and-out chain will become the focus of investigation. Whether it involves opening accounts through local agents or borrowing others' accounts for deposits and withdrawals, as long as a complete closed loop of "domestic funds—OTC merchants—overseas exchanges" is formed, it may be placed on a key examination list. The regulatory goal is to "cut off channels," so any role that can act as a "fund bridge" must acknowledge the escalation of compliance checks.
● As technological monitoring, on-chain tracking, and international judicial cooperation continue to strengthen, the anonymity that was once regarded as "absolutely secure" is gradually being dismantled. The collaboration between on-chain analysis companies and law enforcement makes it easier to label and identify behaviors such as large suspicious fund flows and large-scale multi-hop transfers of privacy coins, posing a potential impact on privacy coin tools and mixing services that rely on anonymity for survival.
● In the short to medium term, the remaining gray crypto business ecosystem in China and part of the on-chain liquidity may face pressure. Some gangs with score running and fund transfer as their core businesses may be forced to scale down or be driven to more loosely regulated fringe areas; for compliant trading scenarios, there may be short-term pressure from "collateral damage" and liquidity contraction risks, but in the long run, this could benefit the purification of the ecosystem and enhance overall industry transparency.
Game Under Pressure: The Survival Space of Users, Project Parties, and the Gray Industrial Chain
● Within the same high-pressure judicial framework, the situations of ordinary holders, short-term speculators, and professional score-running money laundering groups are entirely different. The former faces "information asymmetry" risks more—stumbling upon red lines without understanding the policy bottom line; while the latter thrives on "risk pricing," knowingly engaging in behavior closely tied to fraud funds yet choosing to participate anyway. Accurately distinguishing between subjective malice and behavioral patterns in enforcement is key to avoiding "one-size-fits-all" measures.
● With the escalation of crackdowns, the gray industrial chain is likely to strategically adjust: shifting from large concentrated transfers to "small, multiple, and dispersed operations" or moving to emerging public chains, cross-chain bridges, and more obscure tools to increase tracking costs. Each crackdown pushes out a portion of participants in the short term while also driving existing participants to iterate on tools and paths.
● Against the backdrop of severe domestic crackdowns, the realistic choice for compliant project parties and teams is often to accelerate going offshore and "un-Chinization" of business: including diluting Chinese elements in white papers, team introductions, and product designs, relocating key operational entities and servers to overseas jurisdictions to reduce the probability of being involved in "crime-related scenes." This trend has been reflected in the migration of several projects in recent years, and the latest judicial signals may further accelerate this process.
● For individual investors, the new high-pressure cycle means they must redefine the safety boundary between “on-chain privacy” and “criminal risk.” Engaging in high-leverage anonymous derivatives, frequently interacting with non-KYC addresses, and using source-unknown bridging services are no longer just market risk issues; they may fall under the assessment of criminal risk considerations. Thus, how to use crypto tools within a compliance framework has become a practical issue that every participant must face in the new phase.
Regulatory Chessboard Unfinished: The Next Phase of China's Crypto Narrative
● From the financial regulation of the 2021 "9·24 notice" to the inclusion of virtual currency money laundering in the key focus of telecom fraud combat by the Supreme Court in 2026, China's governance path for crypto assets has extended from "preventing financial risks" to "judicial criminal high pressure." This evolution is reshaping the narrative of the relationship between China and crypto assets: from early technical and innovative imaginations to gradually switching to risk goals under the frameworks of fraud governance, cross-border fund security, and social stability.
● It can be anticipated that for some time to come, any actions involving cross-border transfers, on-chain anonymity tools, and frequent interactions with high-risk addresses will be subject to stricter scrutiny. No matter if they are individual users, OTC merchants, or project teams, as long as they are located at potential nodes of telecom fraud and money laundering fund chains, they will find it difficult to remain entirely uninvolved, and compliance awareness and risk control capabilities will gradually become the "entry threshold."
● Amid the global crypto compliance process running parallel to the high pressure of China's fraud governance, China's role in the global crypto market is also changing: transitioning from an early trading and mining powerhouse to a complex form of "high outflow of users, liquidity, and talent, but continuous tightening of domestic policies." In the future, it is more likely to continue influencing the global crypto landscape through indirect means such as overseas compliant platforms, international collaboration, and discourse on technical standards.
● For market participants involved, rather than relying on second-hand interpretations and emotional dissemination, it is better to focus on the subsequent judicial interpretations, landmark cases, and formal documents being implemented. Only through continuous observation of specific cases and judicial rules can they truly clarify the policy boundaries and practical scales, finding relatively stable safety intervals for their actions in the uncertain regulatory chess game.
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