Exclusive Analysis: What Does the Cybercrime Prevention Law (Draft for Comments) Mean for the Cryptocurrency Sector?

On January 31, 2026, as the market experienced severe fluctuations due to liquidity pressures, the Ministry of Public Security, in conjunction with relevant departments, officially solicited public opinions on the "Cybercrime Prevention Law (Draft for Comments)."

Searching for the "Cybercrime Prevention Law" on X (Twitter), you will find very few discussions. Given the diminishing marginal effects from multiple ministerial announcements over the past few years, most people's reactions are: "Isn't this just the same old story?" or "It's already banned anyway, what else can be done?"

This is an extremely dangerous misjudgment. The transition from "ministerial notifications" to "national law" signifies that the regulatory logic has evolved from preventing financial risks to precise criminal governance. Biteye believes this could be the most far-reaching piece of legislation affecting the Web3 ecosystem in mainland China in recent years.

A close reading of the sixty-eight articles in the draft reveals that it no longer gets bogged down in macro concepts like "financial risk" or "illegal fundraising," but rather, it precisely targets the three core operational vulnerabilities in the cryptocurrency space: OTC capital flow, technology development, and public chain node operations.

In this article, Biteye will deeply analyze for you:

1. Key legal provisions

2. Legal expert interpretations

3. Compliance actions that practitioners need to start taking

I. Compared to previous ministerial announcements, it shatters three floors

1. OTC Dilemma: Redefining "Knowledge"

In the past, OTC merchants (U merchants) often used "I’m just doing business, I don’t know the source of the other party's funds" as a defense. Legally, this was often classified as illegal operation or aiding and abetting, with a high conviction threshold.

However, Article 26, Paragraph 3 of the new bill clarifies:

"No individual or organization shall knowingly engage in the following capital flow, payment settlement, etc., with funds that are known to be derived from others' illegal activities… providing capital flow services for others using virtual currencies or other online virtual assets."

While the term "knowingly" is retained, the scope of its determination is expanding significantly in judicial practice. If you engage in transactions at abnormal prices, use encrypted chat software to evade regulation, or fail to conduct extremely strict KYC checks, you may be presumed to have "knowledge."

This is no longer a simple "prohibition on trading," but officially includes virtual currencies like USDT within the regulatory scope of cybercrime capital flow. For the OTC industry, this means compliance costs will skyrocket; it is no longer a question of whether it is feasible, but whether it can be done at all.

2. Long-arm jurisdiction and "joint liability" mechanism

The cryptocurrency space has always adhered to the belief that "code is law, technology is innocent." However, Articles 19 and 31 of the new bill deliver a fatal blow to this creed:

"One shall not knowingly provide support and assistance… in the development, operation, advertising, promotion, or application packaging… for others who use the internet to commit illegal activities."

Even more daunting is the provision regarding "long-arm jurisdiction":

"Chinese citizens residing abroad and foreign organizations or individuals providing services to users within the People's Republic of China who violate the provisions of this law… shall be held legally accountable."

Biteye consulted Sharon (@sharonxmeng618), a financial regulatory lawyer at Jingtian & Gongcheng Allbright Law, regarding this provision: Many clauses in the draft of the "Cybercrime Prevention Law" are regulations on administrative management obligations. Generally, the first response is to order rectification, confiscate illegal gains, impose fines, etc. Only in severe cases (such as involving large-scale fraud funds or not only providing signatures but also participating in operations) does it escalate to the criminal level.

Moreover, long-arm jurisdiction also has a "cost-effectiveness" issue: although Chinese criminal law has principles of personal and territorial jurisdiction, in cross-border practice, unless it involves major cases (like PlusToken-level) or national security, the judicial costs of extraditing programmers residing overseas are extremely high.

3. Public chain governance: A one-way challenge to decentralization

This bill will also impact the public chain ecosystem in mainland China. Article 40, Paragraph 9 requires nodes or institutions providing blockchain services to have the capability to "monitor, block, and handle" illegal information and payment settlements.

Those who understand technology know that a truly decentralized public chain (Permissionless Blockchain) cannot achieve single-point "blocking."

This effectively presents an unsolvable dilemma for Web3 projects within China: either you become a "consortium chain" (pseudo-chain) with backdoors and censorship rights; or you are illegal because you cannot fulfill the "blocking" obligation.

II. Echoes of History: From "9.4" to "2.1"

To understand the magnitude of this impact, we need to extend the timeline and compare three milestones in China's cryptocurrency regulation:

• 2013/2017 (9.4): "Announcement," Defensive Stage. The focus is on "preventing risks," banning ICOs. At that time, the regulatory goal was "to prevent ordinary people from losing money."

• 2021 (9.24): "Notice," Cleanup Stage. The focus is on "illegal financial activities," zeroing out mining. The regulatory goal was "the cryptocurrency space cannot disrupt financial order."

• 2026 (Cybercrime Prevention Law): "Law," Governance Stage. The focus is on "cybercrime related to the cryptocurrency space."

In the first two stages, the regulatory bodies were the central bank and the National Development and Reform Commission, with their focus being on their own business areas, namely "money" and "affairs." But this time, it is led by the Ministry of Public Security, which oversees "crimes" and "people."

Sharon (@sharonxmeng618), a financial regulatory lawyer at Jingtian & Gongcheng, interprets it this way: "In recent years, both crypto-driven crimes (such as money laundering and fraud using crypto assets) and crypto-native crimes (such as hacking, rug pulls, etc.) have been on the rise. This series of legislative actions is an inevitable response from regulators to upgrade from 'administrative prohibition' to 'criminal regulation' against such new types of crime."

In Conclusion: 2026 is a Year of Rule Reconstruction in the Cryptocurrency Space

The crash on February 1 may just be a market reaction to liquidity tightening; the candlestick chart will eventually recover, and the red bars will turn green. But when the legal scalpel cuts into code and funds, compliance is no longer optional but a prerequisite for survival.

Advice from lawyer Sharon: "The scope of 'aiding and abetting' has been expanding in recent judicial practice. In this context, it is not advisable for Web3 practitioners and entrepreneurs to view 'technological neutrality' as a legal exemption. Instead, they need to ensure proper separation in relevant business activities, such as strictly implementing KYC, substantively blocking domestic user IPs, establishing anti-money laundering risk controls, and avoiding participation in high-risk projects' token market-making and commission promotions."

In this new era, for practitioners and investors in mainland China, "compliance" is no longer just a slogan but a red line between life and death.