The legal status of cryptocurrency in China has been a subject of intense discussion, especially following a November 2024 statement from the Shanghai High People's Court. While this statement clarified that personal ownership of virtual currency is not illegal, it did not signal a relaxation of China's strict regulatory approach toward cryptocurrency transactions and business activities. This article examines the evolving legal framework, judicial interpretations, and practical implications for investors.
Introduction to Cryptocurrency in China
Cryptocurrency is a digital or virtual form of currency that uses cryptographic techniques for security and typically operates on decentralized blockchain networks. Unlike traditional fiat currencies issued and regulated by central banks, cryptocurrencies lack central authority backing and rely on distributed ledger technology for transaction verification.
While cryptocurrencies offer innovative potential, they also pose significant challenges related to fraud, speculation, and regulatory oversight. This dual nature has prompted governments worldwide, including China, to monitor their development closely. China has adopted a dual approach: encouraging blockchain technology innovation while implementing stringent regulations on cryptocurrency applications.
Key Regulatory Documents Shaping China’s Crypto Landscape
Since 2013, Chinese authorities have issued several critical notices that, while not formal laws or judicial interpretations, are frequently cited in court rulings and shape the regulatory environment.
2013 Notice: Defining Bitcoin as Virtual Property
The "Notice on Preventing Bitcoin Risks" issued by the People’s Bank of China (PBOC) and other regulatory bodies classified Bitcoin as a virtual commodity rather than legal tender. It prohibited financial institutions and payment organizations from engaging in Bitcoin-related activities, including pricing goods or services in Bitcoin, trading Bitcoin, or providing services related to its registration, trading, settlement, or custody.
2017 Announcement: Banning Token Fundraising
The "Announcement on Preventing Token Issuance Financing Risks" explicitly prohibited initial coin offerings (ICOs) within China. It stated that ICOs constituted illegal securities issuance, unauthorized public fundraising, or financial fraud. Platforms were banned from facilitating exchanges between cryptocurrencies and fiat currencies, acting as trading intermediaries, or providing pricing information for token transactions.
2021 Notice: Comprehensive Restrictions on Virtual Currency
The "Notice on Further Preventing and Disposing of Virtual Currency Trading Speculation Risks" was a sweeping document co-issued by multiple high-level authorities, including the Supreme People’s Court and the Supreme People’s Procuratorate. It declared that "virtual currency-related business activities are illegal financial activities" and emphasized that participation in investment and trading activities "bears legal risk." It stated that civil legal acts related to virtual currency investment that violate public order and customs are invalid, with losses to be borne by participants. This notice has been highly influential in judicial decisions since its publication.
The Legal Status of Cryptocurrency as Property
Chinese courts have generally recognized cryptocurrency as a form of virtual property deserving some legal protection.
In a 2018 case (Beijing No.1 Intermediate Court, Case No. (2018) Jing 01 Min Zhong 9579), the court affirmed that "virtual commodities like Bitcoin can be legally held by anyone."
A 2019 Shanghai First Intermediate Court case (Case No. (2019) Hu 01 Min Zhong 13689) provided detailed reasoning. The court noted that Bitcoin mining requires substantial resource investment, including specialized equipment, energy consumption, and time, embodying human labor and value. Based on its value, scarcity, and disposability, the court recognized Bitcoin as virtual property.
Even after the 2021 Notice, the Beijing No.1 Intermediate Court (Case No. (2022) Jing 01 Min Zhong 5972) upheld a lower court's view that while civil acts involving virtual currency investment might be invalid, no regulations negate the protectable status of virtual currency itself as property.
Thus, across various cases and jurisdictions, Chinese courts consistently acknowledge the economic value of cryptocurrencies and their qualification as virtual property.
The Validity of Cryptocurrency Transactions
While courts recognize cryptocurrency as property, their stance on the validity of transactions has shifted significantly, particularly after the 2021 Notice.
Pre-2021: Occasional Validation of Transactions
Before the 2021 Notice, some courts validated certain crypto transactions. For instance, the Wuhan Jiang'an District People’s Court (Case No. (2020) E 0102 Min Chu 1574) upheld a "Bitcoin Loan Agreement," ruling it reflected the parties' true intent and was binding, as no laws at the time prohibited Bitcoin holding or lawful transfer.
Similarly, the Beijing High People’s Court (Case No. (2020) Jing Min Zhong 747) recognized the validity of an oral contract for Tripio coin sales, distinguishing it from prohibited token fundraising activities.
Post-2021: Increased Judicial Caution and Dismissals
After the 2021 Notice, courts became far more cautious. Many began dismissing cases outright, refusing to hear substantive disputes on the grounds that cryptocurrency transactions fall outside the scope of legal protection.
The Changzhou Intermediate People’s Court in Jiangsu Province (2021’s Top Ten Typical Cases, Case 9) ruled that private Bitcoin transactions are not protected by law and dismissed a lawsuit seeking Bitcoin repayment in a lending dispute.
The Taizhou Intermediate People’s Court in Zhejiang (Case No. (2022) Zhe 10 Min Zhong 352) and the Nanyang Intermediate People’s Court in Henan (Case No. (2024) Yu 13 Min Zhong 3746) similarly dismissed cases, citing the lack of a legal economic standard for evaluating virtual currency and the principle that investors must bear their own risks.
Judicial Treatment of Invalid Transactions
When courts do hear cases and rule transactions invalid due to violation of mandatory regulations or public order, their approaches to remediation differ.
Some courts order restitution to pre-transaction status. The Shanghai Jiading District People’s Court (Case No. (2021) Hu 0114 Min Chu 22216) ordered the return of Bitcoin obtained under an invalid asset management agreement. The Shanghai First Intermediate Court (Case No. (2022) Hu 01 Min Zhong 8069) upheld a similar restitution ruling.
However, other courts refuse to intervene, leaving losses with participants. The Beijing No.1 Intermediate Court (Case No. (2022) Jing 01 Min Zhong 8645) ruled a Sigma coin sales contract invalid and left the buyer to bear the loss. The Beijing High People’s Court (Case No. (2023) Jing Min Shen 463) denied a claim for asset return in a virtual currency entrusted management case, stating that when virtual currency acts as legal tender, the holder’s rights are not protected by law.
This judicial direction has been reinforced at the highest level. The Supreme People’s Court selected the Shenzhen Intermediate Court case (Case No. (2018) Yue 03 Min Te 719) as a guiding case. In this ruling, an arbitral award ordering compensation in USD equivalent to Bitcoin was vacated because it amounted to tacit approval of crypto-fiat exchange, violating public interest.
Frequently Asked Questions
Is owning cryptocurrency illegal in China?
No, simply owning cryptocurrency is not illegal. Chinese courts have consistently recognized that individuals can legally hold virtual currencies like Bitcoin as personal property. The legal risks arise from engaging in transactions, fundraising, or business activities involving them.
Can I sue someone in China to recover cryptocurrency or a related debt?
It is highly challenging. Since the 2021 Notice, Chinese courts often dismiss such cases outright, refusing to hear the substantive dispute. They rule that these private transactions are not within the scope of legal protection, and participants must bear their own risks. Even if a court hears the case, it will likely declare the transaction contract invalid.
If a court rules a crypto transaction invalid, can I get my money or coins back?
It depends on the court. Some courts may order the other party to return the obtained cryptocurrency, restoring the pre-transaction status. However, other courts may rule that all losses must be borne by the investor themselves, offering no legal remedy for recovery. This inconsistent approach creates significant uncertainty.
What was the core change brought by the 2021 regulatory notice?
The 2021 Notice was a watershed moment. It explicitly categorized all virtual currency-related business activities as "illegal financial activities." It strengthened the legal basis for courts to invalidate contracts and refuse enforcement, shifting the landscape from cautious tolerance of some property claims to a much stricter stance against transactional enforcement.
Does China's strict policy mean blockchain technology is also banned?
No. China distinguishes between the underlying blockchain technology and cryptocurrency applications. The government actively supports the research, development, and adoption of blockchain technology for industrial and official use. The restrictions specifically target cryptocurrency trading, speculation, and fundraising.
Where can I find a safe and compliant platform to explore digital assets?
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Conclusion
The Chinese legal system acknowledges cryptocurrency as a form of virtual property but takes a severely restrictive stance on transactions. The regulatory evolution from 2013 to 2021 reflects a tightening grip, moving from defining boundaries to an outright prohibition of most business activities. Judicial practice has followed suit, with courts increasingly invalidating contracts and denying remedies for transaction-related disputes.
This creates a high-risk environment for investors. While owning crypto is permitted, attempting to buy, sell, trade, or use it for fundraising within China exposes participants to significant legal and financial risk, with little to no judicial recourse available. Anyone considering involvement with cryptocurrencies in China must understand this legal framework, proceed with extreme caution, and seek professional legal advice to navigate the substantial risks. The overarching principle remains: participants must be prepared to bear all losses themselves.