A recent ruling by a Shanghai court has shed light on the legal status of cryptocurrency in China. While individuals can legally own cryptocurrencies like Bitcoin and Ethereum as personal property, the court reaffirmed that commercial activities involving digital currencies remain illegal. This distinction reflects China’s cautious stance on digital assets—allowing ownership while banning their use in business activities.
The judge, Sun Jie, from the Commercial Trial Division of Songjiang District People’s Court, stated:
“Virtual currency-related business activities involve significant legal risks. If sufficient market research is not conducted before entering blindly, one could end up with nothing,”
Sun also emphasized the importance of adhering to financial regulations to maintain financial security and stability, saying:
“Participants must exercise extreme caution with virtual currency investments and strictly avoid engaging in unapproved token issuance activities. Adherence to financial laws is essential to safeguard the security and stability of our financial markets.”
These statements highlight the risks and legal consequences of virtual currency-related activities in China, reinforcing the broader message of regulatory compliance.
Cryptocurrencies, categorized as virtual commodities in China, hold property value under civil law. However, their association with activities like token issuance, trading, and financing puts them in violation of strict financial regulations. The court’s decision to void a contract involving token financing highlights the risks businesses face when engaging with crypto-related ventures.
Understanding China’s Ban on Business Use of Crypto
China’s government has long maintained that virtual currency-related business activities disrupt economic and financial order. Token financing and crypto trading are deemed illegal because they often circumvent regulated markets, enabling fraud, illegal fundraising, and even money laundering.
The Shanghai court’s ruling underscores the government’s zero-tolerance approach. In the recent case, a business contract involving token issuance was declared invalid because the activity violated financial regulations. This decision serves as a warning to companies considering similar ventures.
Crypto Contracts in China: Why Caution Is Crucial
For businesses and individuals in China, engaging in cryptocurrency-related activities without understanding the laws can lead to significant losses. The Shanghai court’s case is a stark reminder: contracts involving illegal activities—like token issuance—are automatically void, and funds paid under these contracts may not be fully recoverable.
Moreover, businesses found violating these regulations may face penalties or criminal charges. The court emphasized that while ownership of cryptocurrency as a virtual asset is allowed, activities that use crypto for public financing or trading are strictly off-limits. This dual approach ensures that the public can hold digital assets but prevents their use from undermining financial stability.