Chinese Government Eyes NFTs and the Metaverse for Illicit Activity

Key Insights:

• Supreme People’s Procuratorate (SPP) has reportedly talked of severe retribution to those taking part in illegal activity.
• China’s Two Sessions highlighted growing concerns over the Metaverse.
• A surge in Metaverse-related trademark applications forces increased scrutiny.

Illicit activity has risen across NFT marketplaces and in the Metaverse. Increased interest in NFTs and the Metaverse has drawn cybercriminals from the crypto market to The Sandbox (SAND), Decentraland (MANA), and the NFT space.

Sliding crypto prices and an upward trend in NFT sales volumes and land prices in the Metaverse have contributed to the shift in criminal activity.

The rise in illicit activity has caught the attention of regulators and governments. Since Russia invaded Ukraine, scrutiny has increased as governments aim to prevent Russia from circumventing sanctions.

China Targets NFTs and the Metaverse to Hit Illegal Fundraising

This week, China issued a stern warning to cybercriminals targeting NFTs and the Metaverse. The Supreme People’s Procuratorate (SPP) has reportedly talked of severe retribution for those undertaking illicit activity, including money laundering and fundraising.

On Tuesday, news updates from China’s Two Sessions highlighted growing concerns over the Metaverse. Chinese People’s Political Consultative Conference (CPPCC) member Zhang Ying reportedly talked of the need for appropriate regulations.

Regulations would be needed to address data security, information protection, and speculation. CPPCC member Zhang also talked of a concerning level of speculation in the current form of the Metaverse.

While cryptos are illegal, the Chinese government has stopped short of banning NFTs and the Metaverse. Despite holding back from a ban, the government and state media continue highlighting Metaverse-related risks.

The focus on the Metaverse comes after a surge in interest from Chinese multinationals.

China Metaverse-Related Trademark Applications Defy Government Warnings

Warnings from the Chinese government are nothing new vis-a-vis the Metaverse. Last month, the Chinese Banking and Insurance Regulatory Commission issued a warning to the public on the risks associated with the Metaverse.

Last year, the People’s Bank of China (PBoC) also actively issued warnings about the Metaverse. In December, we reported the PBoC clamping down on NFTs and the Metaverse using AML tools.

Despite the clampdown, Chinese companies have continued to file Metaverse-related trademark applications.

Last week, Chinese tech giant Tencent filed a patent for virtual concerts. Other big names have also been active, with Metaverse-related trademark applications, in China, reportedly reaching 16,000 by late February.

In December, we talked of the likely increased government scrutiny resulting from the surge in applications. With the numbers only rising, the government may take more evasive action to address illicit activity.