In the judicial disposal of virtual currency, there is a legal risk point that is easily overlooked by judicial authorities and disposal companies: public opinion risk.

Written by: Lawyer Liu Zhengyao

I. What is public opinion risk?

Broadly speaking, public opinion risk refers to the possibility of negative public opinion or social sentiment arising from the attention and reactions of the public, media, or other social forces during specific events, policies, or actions, which can adversely affect individuals, organizations, or countries.

In the context of this article, the public opinion risk in judicial disposal refers to the negative public opinion and dissatisfaction towards judicial authorities caused by improper operations during the judicial disposal process involving virtual currencies.

Currently, one of the case assessment indicators in the case management system of Chinese court judges is whether the cases handled by judges have triggered public opinion. This shows that judicial authorities attach great importance to public opinion.

II. What are the public opinion risks in judicial disposal?

According to Lawyer Liu's practical experience in criminal cases in the cryptocurrency sector, there are several types of public opinion risks arising from the disposal of virtual currencies involved in cases:

(1) Legal application disputes

Currently, there are no specific regulations regarding virtual currencies at the legal and regulatory level in China. Instead, regulatory policies related to virtual currency businesses are issued separately or jointly by national ministries and commissions.

As a result, in criminal cases, different conclusions may arise in courts across the country regarding the classification of the virtual currencies involved: some may be recognized as property, some as data from computer information systems, and others as having both characteristics, among various interpretations. Therefore, after court judgments (some disposals occur before court judgments), disputes are likely to arise when disposing of the virtual currencies involved.

(2) Protection of victims' rights

In cases of virtual currency fraud, theft, or illegal fundraising, even if the property involved is virtual currency, it should ultimately be returned to the victims. However, in cases of crimes such as operating illegal casinos, pyramid schemes, and illegal business operations, which are prevalent in the cryptocurrency sector, there is theoretically no concept of "victims," and judicial authorities are not required to return the seized virtual currencies.

When the involved virtual currencies are disposed of and converted into cash for the national treasury, in some cases (mainly involving pyramid schemes), a large number of grassroots investors/participants may demand the judicial authorities or defendants to return their investment funds in the name of "victims." If their goals are difficult to achieve, it often leads to public opinion issues.

(3) Market value fluctuations of virtual currencies

Except for stablecoins, the value fluctuations of virtual currencies are quite common. The impact on already adjudicated criminal cases involving cryptocurrencies is relatively small (although there is significant debate in practice regarding how to determine the amount involved in cases of virtual currencies that have not been disposed of). However, in cases that have not yet been adjudicated but are disposed of in advance, if there is a significant difference in the price of the involved currencies at the time of the court's judgment compared to when the case was filed, various parties, including the prosecution, the court, the suspects/defendants, and even the victims and their families, will have differing expectations regarding the outcome of the case. The disputes between opposing parties can be vast, akin to the difference between heaven and earth. For example, if the value of the seized virtual currencies plummets to nearly zero, the suspects/defendants will certainly claim innocence; however, the prosecution and victims will insist on using the market price at the time of filing the case to convict and sentence the suspects/defendants.

At this point, the timing of judicial disposal will play a decisive role in the direction of the case. However, this also makes it easy to lead to potential public opinion crises.

(4) Compliance disputes in disposal

According to regulatory provisions such as the "9.24 Notice," virtual currency and fiat currency exchange activities are currently not allowed in mainland China. The compliant disposal entities must conduct disposal and conversion abroad, but some disposal companies still conduct exchanges of virtual currencies and RMB within mainland China under the guise of overseas disposal.

This month, Lawyer Liu just opened a case involving pyramid scheme crimes related to cryptocurrencies in a county in the western region. During the court session, we specifically mentioned that the disposal of virtual currencies in this case was actually carried out by a disposal company that entrusted a local resident, Mr. Zhang, to directly pay over 20 million yuan in "disposal funds" to the local county finance department through Mr. Zhang's personal bank account. Essentially, this behavior is Mr. Zhang and the disposal company purchasing the involved virtual currencies directly from the local public security bureau using RMB. The actions of Mr. Zhang, the disposal company, and the local public security bureau constitute illegal financial activities.

If this information were to spread online, it could potentially lead to a public opinion crisis.

Those familiar with disposal may have also heard about an incident where an executive from a disposal company in Chengdu used judicially seized virtual currencies to trade contracts and incurred losses, which is also a situation that can easily trigger public opinion.

The essence of these incidents is the lack of professionalism of the disposal companies and the non-compliance of their disposal models.

(5) International public opinion pressure

China's policies on virtual currencies are among the most strictly regulated globally. Although the United States also regulates virtual currencies, its efforts are not as stringent as those in China. Coinbase, a domestic virtual currency exchange in the U.S., has significant influence globally. However, since 2017, China has prohibited any virtual currency exchanges from operating domestically, and overseas virtual currency exchanges are also not allowed to provide services to residents in mainland China.

Recently, there have been rumors that the Chinese government intends to treat Bitcoin as a national strategic reserve to compete with the United States. However, Lawyer Liu believes this is false information. It is foreseeable that in the coming years, China will not publicly recognize or accept virtual currencies.

As a result, the position of Chinese judicial authorities in disposing of involved virtual currencies is quite awkward. They neither recognize virtual currencies nor want to dispose of them for conversion.

If relevant information about judicial disposal spreads internationally, it could potentially generate unfavorable public opinion against Chinese judicial authorities and even the Chinese government.

III. How to respond to public opinion risks during the disposal process

Responding to public opinion crises in judicial disposal is actually quite simple, primarily focusing on prevention to nip the crisis in the bud. Judicial authorities with disposal business needs must choose reliable disposal companies for the process.

The disposal business has evolved through Disposal 1.0 era (before 2021), Disposal 2.0 era (before 2023), and Disposal 3.0 era (from 2023 to present), transitioning from a rough and wild model to a professional and compliant model. Especially with the involvement of professional web3 and virtual currency lawyers, they can provide comprehensive compliance verification for disposal companies and judicial authorities, covering the application of laws and regulations in judicial disposal, protection of the legal rights of all parties involved, review of the disposal process, and resolution of public opinion crises, among other significant roles.

IV. Final thoughts

By 2025, China's regulation of virtual currencies may change, but Lawyer Liu predicts that such changes will first occur in the judicial field, particularly in the urgent need to address judicial evaluation, price assessment, and judicial disposal of involved virtual currencies. As for opening up private virtual currency investments or even allowing the establishment of virtual currency exchanges domestically, it remains very difficult to achieve at present.

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