In recent years, the hype surrounding virtual currency trading has surged, attracting many people with the so-called "high return rates," leading them to invest in hopes of becoming rich overnight. However, virtual currencies are not legal tender, and their trading activities carry significant legal risks and potential economic losses. Recently, the Jinjiang Court heard a virtual currency investment dispute case, and the ruling once again sounded the alarm for all cryptocurrency investors: in China, virtual currency trading is considered an invalid civil legal act, and any resulting losses must be borne by the investors themselves. This case not only caused a local tycoon in Jinjiang to lose his investment of 490,000 RMB, but it also profoundly revealed the legal dilemmas and potential wealth losses that blind investments in virtual currencies may face under the current strict regulatory environment.
- Case Review: The "Rashomon" of a 490,000 RMB Bitcoin Investment
In 2021, Li met Cai through a friend. Li transferred 490,000 RMB to Cai's account via bank transfer to purchase virtual currency. However, after six months, Li not only did not receive any promised investment interest but also found it difficult to recover his principal. He repeatedly requested Cai to return the 490,000 RMB investment, but Cai continually delayed with various excuses. Consequently, Li sued Cai in court, requesting the court to order Cai to return the 490,000 RMB investment.
Plaintiff Li: Believes that Cai failed to return the investment and interest as promised and demands the return of the principal.
Defendant Cai: Argues that the parties have a fiduciary relationship and that the funds in question are investment funds that have already been spent, thus any gains or losses should be borne by Li. Cai claims that he and Li were not originally acquainted and only met through an introduction at Du's studio. At that time, Li wanted to open an account to purchase 490,000 RMB worth of virtual currency, and since Du did not have enough virtual currency to transfer, he entrusted Cai to assist. After receiving the funds, Cai transferred a total of 70,000 virtual currencies to Li's related account between March 23 and April 4, 2021. He stated that he had used Li's investment to purchase virtual currency and completed the delivery, thus fulfilling the fiduciary contract, and any investment gains or losses should be borne by Li.
- Jinjiang Court Ruling: Virtual Currency Trading Invalid, Losses Borne by Investors
The Jinjiang Court, after hearing the case, concluded that Li's investment of 490,000 RMB for purchasing virtual currency falls within the category of virtual currency investment.
Legal Basis: According to Article 1, Item (4) of the "Notice on Further Preventing and Handling Risks of Virtual Currency Trading Speculation": "Any legal person, unincorporated organization, and natural person investing in virtual currencies and related derivatives violates public order and good customs, and such civil legal acts are invalid, with any resulting losses borne by the investors themselves."
Ruling Result: Although investing and trading in virtual currencies may seem like personal freedom, according to the above provisions, such civil legal acts are invalid and not protected by law. At the same time, Cai has delivered the corresponding virtual currency to Du, who was designated by Li for management, thus completing the entrusted matter. Therefore, the Jinjiang Court lawfully dismissed Li's request for Cai to return the 490,000 RMB investment.
- Judge's Statement: Beware of "High Return Rate" Traps, Stay Away from Legal Risks
The judge reminded that virtual currency trading carries significant legal and economic risks.
Legal Risks: Virtual currencies are not legal tender; they are essentially a specific type of virtual commodity that lacks real value support, experiences severe price fluctuations, and can easily be manipulated by speculators, resulting in high investment risks.
Economic Risks: Virtual currency trading is not protected by law. Whether through personal entrustment for purchase or via so-called "trading platforms," the related civil legal acts are all invalid. In the event of a dispute, investors' requests for the return of investment funds or compensation for losses are unlikely to receive support from the court, and any resulting losses must be borne by the investors themselves.
Beware of Traps: Be cautious of "high return rate" traps and do not be tempted by immediate profits.
- China's Virtual Currency Regulation: Comprehensive Ban and Criminal Prosecution
In recent years, China's regulatory stance on virtual currencies has gone through three stages:
Before 2013: Regulatory lag, technology emergence.
2013-2020: Tightening regulations, clarifying self-borne risks.
2021 to present: Prohibiting trading, mining, and service provision, strengthening criminal prosecution.
On December 5, 2013: The People's Bank of China and five other ministries issued the "Notice on Preventing Bitcoin Risks," clarifying that "Bitcoin should be a specific type of virtual commodity, lacking the same legal status as currency, and should not be circulated or used as currency in the market."
On September 4, 2017: The central bank and seven ministries issued the "Announcement on Preventing Risks of Token Issuance Financing," prohibiting ICOs (Initial Coin Offerings) and exchanges, clarifying that token issuance financing is suspected of illegal issuance of market tickets, illegal securities issuance, illegal fundraising, financial fraud, pyramid schemes, and other illegal activities.
On May 21, 2021: The State Council's Financial Stability Development Committee held its 51st meeting, clearly stating the need to crack down on Bitcoin mining and trading activities, resolutely preventing individual risks from spreading to the social domain.
On September 15, 2021: The People's Bank of China, the Supreme People's Court, the Supreme People's Procuratorate, and ten other departments issued the "Notice on Further Preventing and Handling Risks of Virtual Currency Trading Speculation," clearly stating that "investing in virtual currencies and related derivatives that violate public order and good customs results in invalid civil legal acts, with any resulting losses borne by the investors themselves."
- Practical Analysis: Disputes and Challenges in Judicial Practice
In virtual currency trading disputes nationwide, judicial practice faces numerous controversies:
Scope of Court Acceptance: Some courts tend to view such behavior as involving "illegal financial activities" or "violating national financial regulatory policies," directly dismissing the parties' lawsuits. However, some local courts choose to accept and substantively hear cases when the trading facts are clear and the contractual relationship is relatively independent.
Contract Validity Determination: The validity of virtual currency trading contracts mainly depends on whether the contract content violates national prohibitive regulations. If the contract involves purchasing, exchanging, or speculating in virtual currency trading, it is usually deemed invalid; however, if the contract only involves legal areas such as blockchain technology services or computing power leasing, the court may confirm its validity.
Loss Recovery: After a virtual currency trading contract is deemed invalid, whether to allow the parties to claim the return of property or compensation for losses becomes a focal point of judicial practice disputes. Most courts believe that since the trading behavior itself violates regulatory policies, the parties should bear the risks themselves and do not support requests for return or compensation; however, if one party engages in obvious fraud or embezzlement, the court may still protect the interests of some victims based on the principle of fairness in the Civil Code.
Return Method: If the court orders the return of original virtual currencies such as Bitcoin, it may be questioned as "whitewashing illegal transactions through judicial rulings." If the original items cannot be returned, the court usually requires compensation in RMB, but since virtual currency trading platforms often price in USD or other foreign currencies, whether calculating the RMB amount based on the USD price at the time of the transaction constitutes "disguised foreign currency settlement" is also a matter of dispute.
Conclusion:
The Jinjiang Court's ruling once again emphasizes China's strict regulatory stance on virtual currency trading. In the current environment, any form of virtual currency investment faces significant legal and economic risks. Investors must remain clear-headed, stay away from "high return rate" traps, and avoid blindly following trends. Protecting one's hard-earned money and steering clear of virtual currency trading speculation is the wisest choice.
Related Reading: Hong Kong, India, and Australia Exchanges Resist Bitcoin (BTC) Hoarding-Type Listed Companies, What’s Going On?
Original: “Jinjiang Tycoon Loses 490,000 RMB Investment in Bitcoin, Court Ruling Released”
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