Author: Liu Zhengyao

Recently, the official account of the Shandong High People's Court published an article titled "Who Should Bear the Losses from Authorizing Others to Invest in Virtual Currencies?" Taking a dispute case of entrusting investment in virtual currency as a starting point, it aims to educate the public about the relevant legal risks. The core viewpoint of the article is: investing in virtual currencies is classified as illegal financial activity, and the relevant entrusted contracts are invalid, thus the losses incurred should be borne by the investors themselves, and the court will not provide protection.

However, Lawyer Liu believes that the above viewpoint is overly simplistic and blunt, showing significant legal loopholes by treating all disputes over entrusted investment in virtual currencies the same, thus ignoring the prevalence of various complex circumstances in practice. Therefore, this article is written for a simple analysis, serving as a reference for everyone from the perspective of Web3 lawyers.

01 Case Review and Judgment Logic

The case outlined in the Shandong High Court article is quite simple: Liu was introduced by a friend, Zhang, to authorize Zhang to purchase "Alpha Coin." Shortly after investing, Zhang claimed the platform was suspected of criminal activity and had been filed by the police, resulting in Liu's investment being unrecoverable. Liu subsequently sued Zhang based on the entrusted contract, demanding the return of the investment.

The court's judgment logic can be summarized in the following three steps:

First, it is determined that the entrusted contract established between Liu and Zhang regarding the investment in virtual currency is invalid due to illegal agency activities;

Second, it is determined that Zhang did not gain profits from the entrusted behavior, thus there is no unjust enrichment;

Third, it is concluded that Liu's losses result from his own conduct of illegal financial activities, with risks borne by himself, and his lawsuit request is dismissed.

At first glance, this logic chain seems complete and coherent. However, upon closer examination, it is not entirely reasonable.

02 Three Major Legal Loopholes in the Shandong High Court Article

(1) Invalid Contracts Do Not Equate to Complete Loss Bearing—The Principle of Shared Fault Responsibility is Ignored

The legal consequences of an invalid contract do not automatically mean that one party must bear all losses alone. According to Article 157 of the Civil Code, after a civil legal act is declared invalid, any property obtained from that act should be returned; if it cannot be returned or there is no need for it to be returned, compensation should be made at the market value. The party at fault should compensate the other party for the losses incurred; if both parties are at fault, they should each bear corresponding responsibilities.

This means that even if the entrusted contract involved in the case is deemed invalid due to illegal reasons, the court cannot simply strip investors of their rights to relief on the grounds of "contract invalid, risk borne by themselves," but should further examine the degree of fault of each party and share losses according to the proportion of fault.

In this case, as the introducer and trustee, Zhang recommended the suspected fraudulent "Alpha Coin" platform to Liu. Did Zhang know or should he have known that the platform was illegal or fraudulent? Did he have corresponding duties of care and disclosure during the persuasion and introduction process? These issues were not sufficiently examined and reasoned in the judgment document, which directly exempted Zhang from all responsibility based on "Zhang did not profit," which is evidently inappropriate.

(2) The Responsibility of the Currency Exchange Phase is Completely Avoided

This is the greatest oversight in both the case and the Shandong High Court article.

In practice, the vast majority of ordinary investors do not have the capability to independently convert Renminbi into USDT (Tether) to then purchase other cryptocurrencies. The common operational pathway is: the investor hands over Renminbi to the entrusted person, who then uses methods such as over-the-counter (OTC) trading to first exchange the Renminbi for USDT and then use the USDT to purchase the target virtual currency.

This exchange behavior itself has independent legal implications under the current regulatory framework in China. According to Document No. 42 of 2026 ("Notice on Further Preventing and Disposing of Risks Related to Virtual Currency"), no institution or individual in mainland China is allowed to engage in the business of exchanging legal currency for virtual currencies.

Therefore, if the trustee (the aforementioned Zhang) engages in the act of helping the investor (the aforementioned Liu) exchange Renminbi for USDT during the fulfillment of the entrusted tasks, he not only violates the duty of care under the entrusted contract but also directly engages in the legally prohibited behavior of exchanging legal currency for virtual currency. At this point, the trustee should clearly bear the corresponding legal responsibility for the losses caused by the illegal exchange actions, and cannot use "entrusted contract invalid" as a shield to shift all consequences onto the investor.

Unfortunately, both the article from the Shandong High Court and the judgment in this case did not mention this critically important aspect at all, which is regrettable.

(3) A One-Size-Fits-All Judging Method Ignores the Case-Specific Differences

The article from the Shandong High Court conveys an overly absolute message to the public: as long as one entrusts others to invest in virtual currencies, the resulting losses should be borne entirely by the investors, and the judiciary will not provide protection. This direction in practice could lead to serious misguidance.

In reality, the circumstances surrounding disputes over entrusted investment in virtual currencies vary widely: some trustees exhibit obvious fraudulent behavior, some trustees misappropriate entrusted funds for personal consumption, and there are platforms that are simply "exit" scams with trustees aware of this... If all of these situations are dismissed on the basis of "investors bear the risk," it not only lacks fairness but also objectively provides a shield for wrongdoers and fosters financial fraud.

03 A More Reasonable Judgment Approach—Based on the 2023 National Court's Financial Trial Work Conference Summary

In fact, in addressing the challenges of adjudicating disputes over entrusted investments in virtual currencies, the judiciary has already provided more detailed and reasonable guidance, specifically in the relevant provisions from the draft summary of the 2023 National Court's Financial Trial Work Conference:

When both parties to a contract agree that the entrustor registers an account on a virtual currency trading platform in his own name and authorizes the trustee to engage in investment activities; or the entrustor directly hands funds to the trustee, who operates in his own name or effectively borrows someone else's name to manage investments, a contractual relationship of entrusted investment can be recognized. If the contract is signed after the publication of the "Announcement on Preventing Risks of Token Issuance Financing" (September 4, 2017), the people's court should recognize the entrusted contract as invalid due to illegal agency matters. For the losses suffered by the entrustor, the cause of the entrustment can be regarded as a primary consideration factor for determining the degree of fault, and shared by the parties.

This provision clearly conveys two core directions:

First, entrusted contracts related to virtual currencies signed after September 4, 2017, should be deemed invalid;

Second, after a contract is declared invalid, the losses should not be solely borne by one party, but should be reasonably shared according to the degree of fault of both parties in relation to the occurrence of the entrusted matters.

Taking this case as an example, if we re-examine it in line with the spirit of the aforementioned summary, the court should at least examine the following questions: Did Zhang know or should he have known about the illegal or even fraudulent risks of the "Alpha Coin" platform when introducing Liu to invest? What role did Zhang play in the occurrence and advancement of the entrusted activities, and did he have proactivity and dominance? Did Zhang engage in any additional illegal activities such as currency exchange? Based on a comprehensive assessment of the faults of both parties, can the court then achieve a fair and reasonable allocation of responsibility, rather than simply dismissing the case on the basis of "contract invalid?"

04 Practical Suggestions for Investors

Although Lawyer Liu criticizes the aforementioned judgment, this does not mean encouraging the public to invest in virtual currencies. On the contrary, the risks in the virtual currency market are extremely high, the regulation is not yet perfected, the price fluctuations are intense, and scams are rampant, making it very difficult for investors to seek rights and remedies after suffering losses.

For investors who are interested in understanding or participating in digital asset-related activities, the following suggestions are crucial:

First, fully understand the current regulatory policies on virtual currencies in our country and recognize the legal red lines;

Second, in case of a dispute, pay attention to whether the trustee exhibits behaviors such as fraud, misappropriation of funds, or illegal exchanges, as these circumstances may affect the court's determination of the allocation of responsibilities;

Third, timely preserve relevant evidence such as transfer records, chat logs, and contracts;

Fourth, seek assistance from lawyers with expertise in Web3 and financial laws, and do not blindly trust rash conclusions like "losses must be borne by oneself, suing is useless."

Conclusion

The life of the law lies in its precise connection with reality. The starting point of the Shandong High Court's article is undoubtedly well-meaning—to remind the public to stay away from the risks of virtual currency investments. However, as an authoritative judicial body, guiding public cognition with overly simplified legal logic may cause greater deviations in practice.

An invalid contract does not equal a zero responsibility, and the faults of the trustee should not be wiped away due to the illegality of the investment. Only by genuinely adhering to the principle of fault responsibility and meticulously examining the specific circumstances of each case can we achieve fairness and justice in the law and truly maintain the balance function of the judiciary in safeguarding financial order and protecting the legitimate rights and interests of the parties involved.

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