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The Shanghai High Court has formally acknowledged cryptocurrencies as property under Chinese law, citing their “property attributes” and affirming their value as virtual commodities. However, the court upheld China’s stringent ban on utilizing cryptocurrencies for commercial purposes, including token issuance and speculative trading, according to the ruling.
Case Background: Token Dispute Between Firms
The court’s decision stems from a 2017 dispute between an agricultural development firm, referred to as Company X, and an investment management firm, Company S. During the cryptocurrency market boom, the two entities entered into a “Blockchain Incubation Agreement” aimed at launching a token.
Under the agreement, Company S agreed to draft a white paper and oversee the token issuance, for which Company X paid a service fee of 300,000 yuan (approximately $41,000). However, by 2018, no tokens had been issued. Company S attributed the delay to additional app development requirements outside the agreement’s scope. Dissatisfied, Company X sought to terminate the contract and reclaim its payment.
The Songjiang District People’s Court ruled the agreement invalid, labeling the token issuance as an illegal financial activity comparable to unauthorized public fundraising. Both parties were found at fault, but Company S was ordered to refund 250,000 yuan of the service fee.
Legal Status of Cryptocurrency in China
The case highlights a nuanced legal framework for cryptocurrencies in China. While virtual currencies are considered property and may be legally owned by individuals, commercial activities involving them—such as trading, token launches, or speculative investments—are strictly prohibited.
This legal approach reflects China’s broader efforts to mitigate financial instability and prevent fraudulent schemes and money laundering associated with cryptocurrencies. The court reiterated that engaging in crypto-related business ventures without proper authorization entails significant legal risks.
Broader Implications for the Crypto Industry
The judgment underscores China’s “high-pressure” stance on speculative cryptocurrency activities to safeguard financial stability. It serves as a stark reminder of the legal consequences of non-compliance with China’s financial regulations.
The presiding judge emphasized that contracts breaching financial laws would likely be invalidated, leaving little legal recourse for parties involved. This decision signals that entities must exercise caution when navigating China’s complex legal landscape concerning cryptocurrencies.
