I. Introduction
Cryptocurrency, or encrypted currency, is a form of digital or virtual currency secured through cryptographic methods, typically operating on decentralized systems using blockchain technology. Unlike traditional fiat currencies issued by sovereign governments and regulated by central banks, cryptocurrencies are not backed by a central authority and rely on a distributed ledger to verify and record transactions.
While cryptocurrencies promise decentralization and innovation, they also present significant challenges in relation to fraud, speculation, and regulatory oversight (or, more likely, the lack thereof). The nature of cryptocurrencies has prompted governments and legal systems worldwide, including in China, to take firm stances on defining their status and regulating their use, balancing technological progress with economic security.
This article, through an analysis of key notices and decisions, explores the legal frameworks governing the use and regulation of cryptocurrencies in China, focusing in particular on their nature and the legitimacy of transactions entered into using cryptocurrencies.
II. Chinese Legal Framework On Cryptocurrencies
From 2013 to 2021, Chinese regulators issued various notices regarding transactions of cryptocurrencies. Although these notices are not laws or binding judicial interpretations, they have frequently been cited by Chinese courts in their decisions. The key notices are listed below:
- The 2013 Notice on Preventing the Risks of Bitcoin ("2013 Notice")1: Among other things, the 2013 Notice categorizes Bitcoin as a virtual commodity rather than legal tender, and imposes strict prohibitions onfinancial and non-banking payment institutionsregarding Bitcoin-related activities. For instance, financial institutions and non-banking payment institutions are prohibited from pricing products or services in Bitcoin, and cannot buy, sell, or act as a clearing house for Bitcoin transactions. In addition, financial and non-banking payment institutions were prohibited from offering Bitcoin-related services (e.g., registration, trading, settlement, storage, or mortgage services).
- The 2017 Announcement on Preventing the Financing Risks of Initial Coin Offerings ("2017Announcement")2:This announcement forbids financing activities regarding cryptocurrencies. Among other things, it prohibits initial coin offerings (ICOs) for fundraising within China's jurisdiction, providing that such activities may be found to be illegal operations, financial fraud, or the unauthorized issue or securities. Token financing platforms were also prohibited from exchanging tokens or virtual currencies for legal tender, acting as a clearing
house for transactions, and providing pricing or information services for token exchanges.
- The 2021 Notice on Further Preventing and Resolving the Risks of Virtual Currency Trading and Speculation ("2021 Notice")3: This 2021 Notice is more frequently cited by Chinese courts, as it was issued by the Supreme People's Court and the Supreme People's Procuratorate, among other administrative departments. It covers a wider range of activities regarding cryptocurrencies, including investment, transaction, and mining. Among other things, it provides in terms that "virtual currency-related activities [may be] illegal financial activities." It further emphasizes, "There are legal risks in participating in virtual currency investment and trading activities.If the investment in virtual currencies and related derivatives by a legal person, unincorporated organization, or natural person is against public policy and good customs, the corresponding civil juristic acts shall be null and void, and the losses caused shall be borne by the said legal person, unincorporated organization, or natural person;if the investment is suspected of disrupting financial order and endangering financial security, the party concerned shall be investigated and punished by relevant authorities according to the law."4This provision carries great legal significance as it has been repeatedly cited by Chinese courts in their decisions.
III. The Chinese Courts' Stance on the Nature of Cryptocurrencies
Chinese courts have consistently acknowledged that cryptocurrencies are a kind of property protected by Chinese law.
In 2018, the Beijing First Intermediate People's Court ruled that possessing Bitcoin does not ipso facto violate any laws, confirming its status as a virtual commodity rather than a currency.5
In 2019, the Shanghai First Intermediate People's Court conducted a more detailed analysis on the nature of Bitcoin, determining that Bitcoin is a cryptographic currency generated through block chain technology. The process of "mining" involves miners using computational power to solve complex equations, resulting in rewards in the form of Bitcoin. Therefore, the creation of Bitcoin requires significant material investment (e.g., specialized equipment and energy costs) and time, reflecting human labor and effort. Since this case was decided before the 2021 Notice, the court was also of the opinion that Bitcoin could be transferred through monetary exchanges and yield economic benefits. Thus, due to its value, scarcity, and disposability, Bitcoin fulfills the requirements for virtual property under Chinese law.6
In a 2022 case, the Beijing First Intermediate People's Court upheld the trial court's view that although civil legal acts involving virtual currencies and related derivatives that violate public policy are invalid, there are no laws, regulations, or administrative rules denying virtual currencies are legally protectable as virtual property.7
To conclude, Chinese courts have consistently recognized cryptocurrencies as virtual property with economic value. As property, they can receive protection under Chinese law.
IV. Legitimacy of Transactions involving Cryptocurrencies
Unlike Chinese courts' consistent stance on the nature of cryptocurrencies, judicial decisions regarding the legitimacy of cryptocurrency transactions have evolved. The 2021 Notice was a key
turning point in this regard.
Prior to the 2021 Notice, several Chinese courts confirmed the legitimacy of transactions involving cryptocurrency. In 2020, the Jiang'an District People's Court of Wuhan City ruled that holding cryptocurrency and the legitimate transfer of the same were not prohibited by law, and confirmed the validity of a lending agreement concerning Bitcoin.8In the same year, the High People's Court of Beijing Municipality ruled that Tripio coins are a type of virtual currency, recognizing them as commodities with transactional attributes. Since the transaction in that case involved the purchase and sale of Tripio coins rather than token issuance or fundraising, the High People's Court of Beijing Municipality concluded that the contract did not violate Chinese laws or regulatory provisions.9
Since the 2021 Notice, however, the Chinese courts have become increasingly cautious in ruling on the legitimacy of transactions involving cryptocurrencies.
There have now, to date, been several cases where the court has determined that cryptocurrency transactions fall outside the scope of legal protection, and thus dismissed the case without hearing the merits. For example, in 2021, the Changzhou Intermediate People's Court of Jiangsu Province ruled that Bitcoin, as a specific virtual commodity, cannot circulate as a currency. Transactions involving Bitcoin between private parties were accordingly held to not be protected by law. The case was thus dismissed as it did not fall within the court's jurisdiction.10The Taizhou Intermediate People's Court of Zhejiang Province took a similar position in 2022, holding that Bitcoin, as a virtual property, lacks a legitimate economic valuation standard. Risks arising from cryptocurrency investment transactions accordingly had to be borne by the participants. Consequently, the court dismissed the case, stating that it fell outside the scope of civil litigation.11Similarly, in 2024, the Nanyang Intermediate People's Court of Henan Province cited multiple regulatory notices prohibiting various virtual currency transactions, eventually deciding that Filecoins lacked a valid economic evaluation standard and were accordingly outside the scope of legal evaluation. The lawsuit in that case was thus dismissed.12
Even in cases where the courts do decide to hear the merits of the disputes, they have tended to invalidate the underlying contracts on the basis of violation of public policy. This has engendered a variety of legal consequences.
Some courts are of the view that since the transactions are void ab initio, each party should be restored to its initial position as though the contract never took effect. For instance, in a 2021 case which concerned an asset management agreement regarding Bitcoins, the Jiading District People's Court of Shanghai Municipality determined that, pursuant to various regulatory notices, including in particular the 2013 and 2021 Notices, the underlying agreement was void as the relevant activities were illegal financial activities which contravened financial order and public policy. Since the asset management contract between the parties was void, the Bitcoins obtained under the invalid contract had to be returned (i.e. in a form of contractual rescission).13It is noteworthy that the plaintiff in that case did not request monetary compensation as an alternative remedy, and the court thus did not address the availability or quantification of such a remedy. In another case, the Shanghai First Intermediate People's Court confirmed that the assets obtained by both parties from a void legal act must be returned, rejecting arguments made in the appeal that parties' rights under the transaction were not legally protected at all.14
Other courts, however, have emphasized that since cryptocurrency transactions are void, each party must bear the associated risks, and the courts will not intervene. For example, in 2022, the Beijing First Intermediate People's Court ruled that a cryptocurrency transaction was void and that the resulting losses should be borne by each participant, without ordering any return of the underlying cryptocurrencies.15
This approach was followed by the High People's Court of Beijing Municipality in 2023. In that case, one Zhang entrusted another individual, Hu, with controlling his virtual currency accounts for trading. Although there was no written contract, evidence from their WeChat conversations indicated an agreement on investment terms, suggesting the formation of an asset management contract. The court declared the contract invalid, citing Article 157 of the Civil Code. Article 157 states that where a contract is deemed invalid, any assets obtained from the contract should be returned or compensated if return is not possible. However, since virtual currencies do not enjoy legal protection equivalent to that of legal tender, the court concluded that Zhang's loss from the virtual currency investment should be borne by himself. Zhang's claim for Hu to return the assets was also rejected because the virtual currency investments were not legally protected.16
While different courts have dealt with cryptocurrencies transactions differently, the common thread which underpins the jurisprudence is that transactions involving cryptocurrencies are typically invalid and/or not protected by law. This view appears to be supported by the Supreme People's Court.
In a notable case involving setting aside an arbitration award, the arbitral tribunal ordered the respondent to pay the claimant damages (denominated in RMB) equivalent to the dollar value of certain Bitcoins based on the USD:RMB exchange rate on the day the arbitral award was made. The Shenzhen Intermediate People's Court of Guangdong Province set aside the arbitral award on the ground that it supported the conversion of Bitcoin into legal tender, an act forbidden by the 2013 Notice and 2017 Notice. In particular, the court emphasized the breach of public policy the award necessarily entailed, as well as the need to preserve financial stability.17This case was later designated as a guiding case by the Supreme People's Court.
V. Conclusion
While Chinese courts consistently recognize cryptocurrency as a virtual commodity which is legally protectable, the legitimacy of transactions concerning cryptocurrencies and whether such transactions are protected by law has evolved over the years. Since the 2021 Notice, Chinese courts have increasingly invalidated cryptocurrency-related contracts. This trend reflects the courts' stance that transactions involving virtual currencies violate public policy and disrupt financial order, rendering them void.
Investors in cryptocurrencies should thus carefully consider the legal environment surrounding cryptocurrencies in China before entering into any legal agreements concerning the same in mainland China.
Footnotes
1 Notice of the People's Bank of China, the Ministry of Industry and Information Technology, the China Banking Regulatory Commission, the China Securities Regulatory Commission and the China Insurance Regulatory Commission on Preventing the Risks of Bitcoin, No.289 [2013] of the PBC
2 Announcement of the People's Bank of China, the Office of the Central Leading Group for Cyberspace Affairs, the Ministry of Industry and Information Technology and Other Departments on Preventing the Financing Risks of Initial Coin Offerings
3 Notice on Further Preventing and Resolving the Risks of Virtual Currency Trading and Speculation, No.237 [2021] of the PBC
4 Original Chinese states, "参与虚拟货币投资交易活动存在法律风险。任何法人、非法人组织和自然人投资虚拟货币及相关衍生品，违背公序良俗的，相关民事法律行为无效，由此引发的损失由其自行承担；涉嫌破坏金融秩序、危害金融安全的，由相关部门依法查处。"
5 (2018) Jing 01 Min Zhong No. 9579 ((2018)京01民终9579号)
6 (2019) Hu 01 Min Zhong No. 13689 ((2019)沪01民终13689号)
7 (2022) Jing 01 Min Zhong No. 5972 ((2022)京01民终5972号)
8 (2020) E 0102 Chu Min No. 1574 ((2020)鄂0102民初1574号)
9 (2020) Jing Min Zhong No. 747 ((2020)京民终747号)
10 Case No. 9 of the Top Ten Typical Cases Released by the Changzhou Intermediate People's Court of Jiangsu Province in 2021: The Private Lending Dispute Case between Xu and Lin for the Return of Bitcoins.
11 (2022) Zhe 10 Min Zhong No. 352 ((2022)浙10民终352号)
12 (2024) Yu 13 Min Zhong No. 3746 ((2024)豫13民终3746号)
13 (2021) Hu 0114 Chu Min No. 22216 ((2021)沪0114民初22216号)
14 (2022) Hu 01 Min Zhong No. 8069 ((2022)沪01民终8069号)
15 (2022) Jing 01 Min Zhong No. 8645 ((2022)京01民终8645号)
16 (2023) Jing Min Shen No. 463 ((2023)京民申463号)
17 The Case of Gao Zheyu vs. Shenzhen YunSilu Innovation and Development Fund Enterprise and Li Bin for the Application to Set Aside an Arbitration Award - Case No.4 of the 36th Group of Guiding Cases Issued by the Supreme People's Court [Guiding Case No.199]
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