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Chinese Supreme Court Clarifies Framework for Crypto Disputes

Chinese Supreme Court Clarifies Framework for Crypto Disputes

Since September 2021, China has banned cryptocurrency transactions and heavily restricted crypto mining operations. However, the ban has proven to be more of a guideline in practice. Chinese policymakers have discussed crypto taxation, and a court case in 2022 clarified that although locals cannot use crypto as currency, they can own them as an investment asset – which can be taxed. This has led to further deliberation on how Chinese courts should handle lawsuits involving cryptocurrencies.

Debts Can Be Settled With Crypto

Chinese policymakers have declared that debts can be settled in cryptocurrency up to an unspecified value, provided that a valid contract is in place specifying payment in these assets and no other local laws take precedence. However, the cryptocurrencies used to settle the debt must not be considered legal tender. If the contract treats them as such, Chinese courts will declare it invalid.

«Where a party uses virtual currency as a regular payment instrument to exchange legal tender or physical commodities under the guise of a basic transaction contract, the people’s court shall determine that the contract is invalid.»

Crypto Platforms Liable Under Certain Conditions

Before the total ban on crypto trading in 2021, the Chinese government issued several warnings to citizens about the risks associated with trading such assets. Recent events have shown that the warnings were not completely unwarranted. Chinese citizens who lost their assets during the crypto winter will not be protected in court by the government. However, Chinese citizens who participated in crypto trading before September 4, 2017, and lost their assets due to trading platforms failing to meet their contractual obligations can pursue justice in court. The legal draft also outlines how Chinese courts should handle disputes involving suspected criminal activity or crypto mining. Although crypto trading may be banned in China, the continued focus on this asset class could mean that the ruling may be lifted in the future, considering that the nation has repeatedly changed its stance on digital assets in the past.