Trading prohibited, virtual assets protected
The First Intermediate People’s Court in Beijing said in a ruling that although China bans crypto trading, cryptocurrencies can be protected by law as a kind of virtual asset.
The intermediate court said in an appellate case released publicly on September 7 that cryptocurrencies should be considered virtual properties, as a joint announcement by the Chinese central bank in 2013 said “Bitcoin should by its very nature be a specific virtual commodity.”
The court said “there is no statute, administrative regulation, or departmental rule denying the protection of cryptocurrency per se as virtual property.”
See related article: The crypto market is shaken as China declares all crypto transactions illegal
The court’s decision comes in response to an appeal over a Litecoin chargeback dispute. In this case, the appellant Ding Hao refused to accept a preliminary injunction to return the Litecoins that Ding borrowed from the plaintiff, Zhai Wenjie. The appellant argued that cryptocurrency trading is not protected by law in China, and therefore he was unable to obtain Litecoin through legitimate channels to pay off the debt.
In the first trial, Ding was sued by Zhai for borrowing 50,000 Litecoins and failing to return all the borrowed Litecoins as agreed. The first trial ordered Ding to return 33,000 Litecoins to Zhai for the unreturned amount.
Zhai refuted Ding’s appeal, arguing that the crypto ban is only a regulatory opinion, not a ban on all cryptocurrency-related contracts, and has no impact on Ding’s performance obligations. He also argued that cryptocurrencies are essentially virtual assets and their transactions in Litecoins were loans between friends and did not fall under investment and financing practices and therefore should be protected by law.
The court rejected the appeal, and upheld the original ruling ordering Ding to return 33,000 Litecoins to Zhai.
Courts disagree on whether cryptocurrencies should be protected by law
This was not the first time that Chinese courts have recognized the virtual asset attributes of cryptocurrencies. In May, the Chaoyang Primary People’s Court of Beijing said in a ruling that Chinese regulations “do not deny the property of cryptocurrencies as virtual goods, and Chinese laws and administrative regulations do not prohibit holding and transferring Bitcoin.”
In May, the Shanghai High People’s Court commented that “in litigation, the People’s Court has formed a unified opinion on the legal positioning of Bitcoin, and identified it as virtual property” on its verified social media account.
But some other courts have disagreed. The Zhongxian Primary People’s Court of Chongqing said in a ruling published in July that entrusting others to invest in cryptocurrencies is an invalid civil action under the crypto ban. In June, the People’s Court of Sichuan Pilot Free Trade Zone said in a ruling that investing in crypto is an unapproved and illegal act that cannot be protected by law.
In June, the Fengxian Primary People’s Court in Shanghai ruled that a contract involving the purchase of a car with cryptocurrency was invalid. The court said that’s because buying a cryptocurrency vehicle to replace fiat currency violated the central bank’s rule against accepting Bitcoin as fiat. And according to China’s Contract Law, contracts that violate the mandatory provisions of China’s Administrative Regulations are void.
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