Author: Lawyer Liu Zhengyao
Introduction
In the cryptocurrency field, OTC traders (also known as "U traders") are often jokingly referred to as "dancers on the edge of a knife." On November 28, 2025, thirteen national ministries held a meeting to discuss mechanisms for combating speculation in virtual currency trading. Although this meeting did not introduce new industry regulatory policies from a legal standpoint, it essentially continues the policies of the 2021 "9.24 Notice." However, in judicial practice, it marks a further refinement of regulatory granularity. For more details, see “Central Bank: Continuing to Combat Speculation in Virtual Currency Trading, Is There Still a Survival Soil for Virtual Currency in China?”
As a Web3 lawyer, the author observes that this "new policy" in the cryptocurrency circle is actually pushing virtual currency trading from "administrative violations" to the brink of "criminal pressure." Against this backdrop, the business logic of U traders is facing an unprecedented legal reconstruction.
01 Impact of the "New Policy": Regulatory Policy vs. Judicial Rulings
The core of the meeting on November 28, 2025, was "coordinated planning and penetrating strikes." For OTC traders, this means that the previous understanding of "as long as I don't break the law, the police won't interfere" may no longer apply. This is mainly reflected in the following two aspects:
First, the extension of regulatory definitions. The meeting once again clarified that activities related to virtual currencies fall under "illegal financial activities." In criminal defense, this means that in cases involving U traders, courts will be more inclined to determine subjective malice as "the defendant knowingly engaged in behavior prohibited by the state." In other words, the threshold for "presumed knowledge" has been lowered, making it difficult for parties to use "I didn't know trading virtual currencies was illegal" as a defense.
Second, the closure of the evidence chain. The collaboration of the thirteen ministries has strengthened data sharing between banks, anti-money laundering monitoring centers, and public security agencies. This means that tracking the flow of funds will be more real-time, and some U traders who previously evaded risk control through "technical means" will find their space significantly reduced.
02 Arbitrage: Why It Is No Longer a "Pure Business"?
From a business logic perspective, buying low and selling high in virtual currencies (arbitrage) is a legitimate business activity; however, under legal scrutiny, this behavior can easily evolve into criminal risk. Common charges include concealing crimes and illegal business operations:
(1) Concealing and Hiding Criminal Proceeds: Subjective Knowledge "Presumption"
This is the most common charge among U traders. As Web3 lawyers, we have found through extensive practical and theoretical research that the current trend in rulings related to cryptocurrency concealment crimes is increasingly leaning towards "presumption of subjective knowledge."
The difficulty for criminal defense lawyers mainly lies in the fact that judicial authorities typically presume U traders have an "obligation to know" the illegality of the source of funds based on characteristics such as "transaction prices significantly deviating from market prices," "using encrypted communication software (like Telegram, Bat, Potato) for chats and deleting records," and "frequent card changes." As a result, verbal defenses lacking objective evidence are rendered weak.
For the parties involved, this judicial reality means that even if you subjectively only want to earn a few cents in profit, under the closed evidence chain, it is difficult to prove that you were "completely unaware" of the mixed funds from fraud or online gambling.
(2) Illegal Business Operations: Blurred Boundaries of Business Activities
The Shanghai Second Intermediate People's Court has previously published discussions on the identification of illegal business operations involving virtual currencies. Lawyer Liu has also provided a detailed analysis in the article “How to Identify Illegal Business Crimes Involving Virtual Currencies? Shanghai Court Provides a 'Standard Answer'.” However, to be frank, judicial authorities across the country do not have a consistent understanding of virtual currencies, and rulings vary. In my view, the Shanghai court's legal evaluation of virtual currencies and related businesses is relatively lenient. However, this does not mean that judicial authorities in other regions will necessarily recognize the Shanghai court's perspective.
In practice, many large U traders not only engage in arbitrage but also effectively act as "underground banks," especially in the exchange of RMB and foreign currencies. For example, "using currency as a bridge"—if U traders collect RMB domestically and pay foreign currency abroad (or vice versa), this currency hedging behavior using virtual currencies as intermediaries, when characterized by long-term and operational nature (some local judicial authorities may not even require this), can easily be identified as "disguised foreign exchange trading," thus violating illegal business operation laws.
Therefore, in practice, even if the source of funds is legal, as long as it possesses characteristics such as "operational" and "cross-border settlement," the legal risks of illegal business operations will increase exponentially.
03 Practitioners' "Cost-Effectiveness" Ledger: Compliance Costs in a Niche Industry
As a legal advisor to some Web3 entrepreneurs, the author often suggests that practitioners reassess the cost-effectiveness of their businesses. For example, U traders often exhibit the following characteristics:
Dimension
Past (relatively lenient period)
Current Stage (under the "new policy" context)
Profit Margin
Exchange rate difference + traffic bonuses
Extremely narrow margins + extremely high compliance costs
Legal Risks
Mainly "frozen accounts," mostly civil disputes
Criminal filing risks, involving concealment and money laundering charges
Rights Protection Costs
Relatively standardized appeal and unfreezing processes
Involves inter-provincial cases, with high communication and lawyer costs
Survival Status
Relatively free over-the-counter matchmaking
Under high-frequency risk control and judicial monitoring
Our viewpoint is:
The current OTC business has transformed into a "low-yield, high-probability of criminal prosecution" business. When you take on a potential criminal risk of over 90% for a 1% profit, this is extremely irrational from a business decision-making perspective.
04 Conclusion: Compliance Recommendations for Web3 Lawyers
If OTC practitioners still need to delve into this field, they must establish a professional compliance barrier. Specifically, this includes, but is not limited to, the following:
(1) Extreme execution of KYC. Not only should you check the other party's ID, but also verify the legal source of funds.
(2) Transparency of transaction paths. Avoid using communication tools that may be presumed to be "evading regulation" to discuss core transaction steps.
(3) Physical separation of funds pools. Strictly distinguish between personal living funds and business funds to reduce the risk of "one person involved, entire family frozen."
(4) Retain a complete evidence chain. This includes transaction background, communication records, and statements provided by the other party, as potential defense evidence for "subjective unawareness" in the future.
…
The "new policy" in the cryptocurrency circle in 2025 is not a change in law but a complete upgrade of execution logic. OTC traders should realize that the underlying logic of this business has shifted from "resource-driven" to "risk control-driven." In a context where regulatory intensity is at an all-time high, compliance is no longer just a slogan but the only ticket to remain at the table.
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