November 21, 2024
By Anjali Kochhar
A recent ruling by the Shanghai High Court has recognised cryptocurrencies as “property” under Chinese law, affirming their status as virtual commodities. However, the court upheld China’s strict prohibition on commercial activities involving cryptocurrencies, including token issuance and speculative trading.
The case, stemming from a legal dispute between an agricultural development company and an investment management firm, underscores the tension between China’s recognition of crypto as property and its efforts to clamp down on crypto-related financial activities. The case was originally heard by the Songjiang District People’s Court in Shanghai, which made clear that while cryptocurrencies may be considered assets, their use for commercial purposes remains illegal in China.
The dispute began in 2017 during a cryptocurrency market boom, when the agricultural company, referred to as Company X, entered into a “Blockchain Incubation Agreement” with the investment firm, Company S. The agreement was designed to help Company X issue tokens and raise funds through blockchain technology. Company S was tasked with creating a white paper and facilitating the issuance of the tokens. Company X paid a service fee of 300,000 yuan (about $41,000) for the services.
However, a year later, the tokens had not been issued, and Company S claimed that additional app development was required, which was not covered in the initial agreement. Frustrated by the lack of progress, Company X sued to terminate the contract and recover its service payment. The court ruled in favour of Company X, declaring the contract invalid due to the prohibition on token issuance in China, which the court deemed an illegal financial activity comparable to unlicensed public fundraising. Despite the ruling, both companies were found to be at fault, and Company S was ordered to return 250,000 yuan of the service fee to Company X.
While this decision focused on a specific contract dispute, it also addressed the broader issue of the legal status of cryptocurrencies in China. The court clarified that while cryptocurrencies are considered property and can be held as personal assets, business activities involving them remain prohibited. This ruling highlights China’s ongoing policy of curbing speculative cryptocurrency activities, which authorities view as contributing to financial instability and potentially fueling illegal activities such as fraud and money laundering.
The court’s decision serves as a warning to those in China looking to engage in crypto-related business activities. Although individuals may legally hold cryptocurrencies as personal assets, launching token projects or engaging in crypto trading without proper authorisation exposes entities to significant legal risks. Contracts involving illegal activities, such as token issuance or unauthorised fundraising, are likely to be deemed invalid, limiting the legal options for those involved.
China has maintained a “high-pressure” stance on cryptocurrencies for years, with authorities cracking down on speculative trading, initial coin offerings (ICOs), and other crypto-related financial activities. The Shanghai court’s ruling reaffirms this policy, sending a clear message that while cryptocurrencies can be considered assets, they remain tightly controlled when it comes to business use.
The case serves as a lesson for businesses and individuals navigating China’s complicated cryptocurrency laws to be cautious and make sure they are adhering to the nation’s stringent financial regulations. Following the law is essential to preventing expensive legal disputes because there are still serious legal concerns connected to participating in unapproved cryptocurrency ventures.
About the Author
Anjali Kochhar is a journalist specializing in cryptocurrency and blockchain news in India and globally. With over three years of media experience, she focuses on uncovering stories that go beyond the surface. An avid reader, she enjoys writing on diverse topics.
