The dramatic rise and fall of cryptocurrency prices in recent years have drawn massive investments and widespread public attention. Among digital currencies, Bitcoin stands out as the most recognized and influential. Since its inception in 2009, Bitcoin evolved from a niche experiment—famously used in 2010 to buy a pizza—into a foundational element of token-based economies by 2014, and today, it is increasingly seen as a hedge against financial volatility. According to a report by Cailian Press on April 22, 2021, Bitcoin surged nearly 90% that year alone. The momentum peaked when Coinbase, the largest U.S. cryptocurrency exchange, went public on Nasdaq on April 14, 2021, pushing Bitcoin to an all-time high near $65,000.
However, alongside these gains come significant risks—especially in the legal and regulatory landscape surrounding cryptocurrency trading, which continues to generate complex disputes and compliance challenges.
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The Legal Nature of Cryptocurrencies
Cryptocurrencies Are Virtual Property, Not Legal Tender
Regulatory guidance in China has consistently emphasized that cryptocurrencies like Bitcoin are not legal tender. Key documents shaping this stance include:
- The 2013 Notice on Preventing Bitcoin Risks issued by the People’s Bank of China (PBOC) and four other ministries.
- The 2017 Announcement on Preventing Risks of Token Offerings from seven regulatory bodies, including PBOC and the Cyberspace Administration.
- The 2018 joint risk alert on illegal fundraising under the guise of “virtual currency” or “blockchain.”
- The 2021 Announcement on Preventing Risks of Cryptocurrency Trading Speculation by industry associations.
These documents collectively affirm that while cryptocurrencies may be referred to as “currency,” they are not issued by monetary authorities and lack legal tender status, enforceability, or mandatory acceptance. Therefore, they cannot be used as official currency in transactions.
Instead, regulators classify cryptocurrencies as virtual commodities—a form of digital asset that individuals may hold, provided they assume full investment risk. There is no outright ban on ownership, but strict limitations apply to financial institutions and trading platforms.
Prohibited Activities Involving Cryptocurrencies
Due to their non-monetary status, the following activities are strictly forbidden:
- Initial Coin Offerings (ICOs) or any form of unauthorized fundraising using digital tokens.
Financial institutions or payment processors offering services such as:
- Currency exchange between fiat and crypto.
- Acting as market makers or central counterparties.
- Providing pricing data or brokerage services for virtual currencies.
- Insurance companies underwriting crypto-related risks.
- Platforms facilitating trading between fiat money and cryptocurrencies or between different digital tokens.
These restrictions aim to protect financial stability and prevent systemic risks stemming from unregulated digital asset markets.
Are Cryptocurrencies "Property" Under Civil Law?
While recognized as virtual commodities, the precise legal classification of cryptocurrencies remains debated—particularly whether they qualify as “property” under civil law frameworks.
Virtual Assets vs. Traditional "Things"
Under China’s Civil Code, Article 127 acknowledges network virtual property as a protected category but does not define its scope or governing rules. This legislative gap leaves room for interpretation.
In practice, courts have generally rejected treating cryptocurrencies as tangible objects ("you ti wu") under property law. For instance, in the MT. Gox case in Japan, the court ruled that Bitcoin does not meet the criteria for physical property due to its intangible, data-based nature.
Similarly, Chinese courts have declined to classify Bitcoin as a “thing” under civil law—not because it lacks value, but due to the principle of statutory property rights (wùquán fǎdìng). Since no current law explicitly recognizes virtual currencies as property objects eligible for ownership rights (like real estate or movable goods), they cannot be treated as traditional assets under property law.
Instead, courts increasingly view them as protected civil interests—intangible rights that warrant legal protection even if they don't fit neatly into existing categories.
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Key Legal Questions in Cryptocurrency Disputes
Is a Cryptocurrency Transaction Contract Valid?
There is no uniform legal standard for determining the validity of contracts involving digital currencies. Judicial approaches vary significantly:
Contracts Declared Invalid
Some courts rule such agreements invalid on grounds of violating public order and financial regulations. Examples include:
- A 2018 Shandong case ((2018) Lu01 Min Zhong 4976) where the court deemed Bitcoin-related debts "illegal" and unenforceable.
- A Shanghai case ((2020) Hu02 Min Zhong 7308) invalidating a crypto-based investment contract for breaching financial order and social ethics.
- A Hunan case ((2017) Xiang0105 Min Chu 6277) citing national monetary policy to declare a crypto-clearing agreement void.
These rulings reflect concerns over financial stability and regulatory compliance.
Contracts Upheld as Valid
Conversely, other courts uphold private crypto transactions when they involve no ICOs or institutional involvement:
- In a 2017 Beijing case ((2017) Jing0108 Min Chu 12967), the court acknowledged that while Bitcoin isn’t legal tender, there is no explicit legal prohibition against individual trading.
- A 2020 appeal ((2020) Jing Min Zhong 747) recognized Tripio coin sales as legitimate commodity exchanges.
- Another Beijing case ((2019) Jing0111 Min Chu 21131) validated user investments via a crypto app as lawful contractual behavior.
This divergence highlights an ongoing tension between innovation and regulation.
“The law lags behind technology—but not indefinitely.” As regulatory clarity improves, judicial consistency will likely follow.
What Happens If a Crypto Contract Is Invalid?
When contracts are voided, courts differ in how they handle restitution:
- Some apply property return principles, requiring返还 (return) of the original cryptocurrency—effectively recognizing its value.
- Others adopt an “illegal debt, self-assumed risk” approach, leaving losses entirely to the investor.
This split underscores uncertainty in enforcement and investor protection.
Can You Demand Delivery of Cryptocurrency?
Despite classification ambiguities, many courts do support specific performance—ordering the return of actual coins rather than cash compensation.
Supported in Contractual Claims
Courts often enforce delivery when:
- The contract is valid.
- Parties agreed to transfer specific tokens.
Examples: (2019) Jing0111 Min Chu 19452, (2018) Jing0108 Min Chu 24805.
Supported in Property Protection Claims
Even without formal ownership rights, claimants may succeed under civil interest protection, especially when proving rightful possession was disrupted.
However, some courts reject such claims on procedural grounds—arguing crypto lacks a legally recognized valuation mechanism or threatens monetary sovereignty ((2020) Shanxi Case 11210, (2019) Liaoning Case 343).
Can Interest Be Claimed on Delayed Returns?
Interest is typically tied to fiat currency loans. Since crypto isn't legal tender, borrowing it doesn't create a traditional lending relationship.
Thus, most courts deny interest claims:
- In (2019) Hu01 Min Zhong 13689, interest was rejected due to lack of legal basis.
Yet exceptions exist:
- (2020) E’nan Case 1574 awarded interest based on Bitcoin’s economic value and analogized to民间借贷 (private lending), applying relevant interest rate caps.
This suggests a gradual shift toward treating digital assets more like tradable goods with measurable opportunity costs.
Can Virtual Currency Be Enforced by Courts?
Enforcement remains one of the biggest hurdles. Unlike bank funds, cryptocurrencies:
- Exist only as code.
- Lack centralized custody.
- Rely on private keys for control.
There is no equivalent to a bank freeze or wire transfer. While some courts have collaborated with exchanges to freeze accounts, such cooperation is rare and legally ambiguous—especially if the platform itself faces investigation.
As a result, claimants are advised to request monetary compensation as an alternative remedy in case actual delivery proves impossible.
Frequently Asked Questions (FAQ)
Q: Is owning cryptocurrency illegal in China?
A: No. While trading and financial services involving crypto are restricted, individual ownership is not explicitly banned. However, users bear full responsibility for associated risks.
Q: Can I sue someone for not returning my Bitcoin?
A: Yes. Courts increasingly recognize cryptocurrency holdings as protected civil interests, allowing claims for return or damages—even if not classified as formal property.
Q: If a crypto contract is invalid, can I get my money back?
A: It depends. Some courts order restitution; others dismiss claims entirely. Outcomes often hinge on whether the transaction appeared speculative or violated financial regulations.
Q: How is the value of cryptocurrency determined in court?
A: Typically using public market prices at the time of breach or judgment. Courts may reference major exchanges but avoid relying on platforms banned in China.
Q: Can I earn interest on lent cryptocurrency?
A: Generally no—since crypto isn’t legal tender. But rare cases allow compensation based on economic loss analogies to private lending rules.
Q: Is it possible to enforce a judgment requiring Bitcoin delivery?
A: Extremely difficult. Without access to private keys or exchange cooperation, enforcement relies on voluntary compliance. Monetary damages are often a more practical remedy.
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Final Thoughts
Cryptocurrency occupies a gray zone in law: valuable yet unclassified, tradable yet restricted. While regulators prioritize financial stability over innovation, courts are gradually adapting—recognizing digital assets as deserving of legal protection under evolving doctrines of virtual property and civil rights.
For investors and users, this means navigating a landscape where rights exist—but are fragile. Legal clarity will come not just from legislation, but from consistent judicial reasoning and international regulatory alignment.
Until then, caution, documentation, and awareness of jurisdictional risks remain essential for anyone engaging in cryptocurrency activities.
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