Introduction
Case Study 1: Bitcoin Investment Dispute
In 2019, Mr. Li entrusted Mr. Wei to purchase and manage 1.5 BTC under an agreement where:
- Mr. Li retained rights to sell the BTC at any time
- Mr. Wei guaranteed principal protection
- 20% of profits would be paid as commission
When Mr. Li requested liquidation in May 2021 (BTC price: ¥373,884 each), he discovered Mr. Wei had secretly used the BTC as futures collateral in March 2020, resulting in total loss. Although they later amended terms (reducing commission to 10% and agreeing to repay at May 2021 valuation), Mr. Wei defaulted, leading to litigation.
Judicial Perspectives:
- First Instance Court: Recognized BTC as virtual property, upholding contract validity. Ordered Mr. Wei to compensate ¥512,842.8 (principal + appreciation) plus interest.
- Appellate Court: Voided the contract as violating public order, citing PBOC notices (2013, 2017, 2021) that prohibit virtual currency financial activities. Ruled investor bears losses.
- Retrial Court: Upheld appellate decision, denying further appeal.
This divergence in judicial interpretation highlights critical questions about virtual currency contract validity.
Legal Attributes of Virtual Currencies
Defining Characteristics
- Digital value representation without physical form
- Decentralized issuance by private entities (unlike state-backed digital currencies)
- Limited circulation rights: Cannot function as legal tender per PBOC regulations
Key Regulatory Milestones
- 2013 Notice: Classified BTC as "specific virtual commodity" while banning monetary use
- 2017 Announcement: Prohibited ICOs and exchange services
- 2021 Notice: Declared all virtual currency transactions as illegal financial activities
Property Value Recognition
Virtual Currency as Protected Asset
Despite transactional restrictions:
- Civil Code Article 127 acknowledges network virtual property rights
Courts recognize virtual currencies possess:
- Value through labor input ("mining")
- Scarcity and controllability
- Commodity attributes
Judicial Practice:
- Transactions may be voided, but assets aren't confiscated
- Example: Supreme Court (2022) case ordered contract price refund despite voiding mining software agreement
Contract Validity and Liability Framework
I. Contract Validity Controversies
A. Valid Contract Perspectives
- Commodity Status: 2013 Notice permits BTC as tradeable commodity
- Case Law: Some courts uphold non-ICO virtual currency transfers (e.g., Tripio coin case)
B. Invalid Contract Grounds
Environmental Violations:
- Mining conflicts with China's carbon neutrality goals
- Courts void mining equipment sales (2023 Shandong case)
Public Order Violations:
- 2021 Notice explicitly voids contracts harming financial秩序
Regulatory Non-Compliance:
- Violates mandatory provisions in banking laws
II. Post-Invalidation Liability
Approach 1: Investor Self-Responsibility
- Courts deem transactions "illegal debt"
- Neither restitution nor compensation awarded (Jiangsu high court cases)
Approach 2: Equitable Remedies
- 50/50 Loss Allocation: For mutual fault (Jiangsu case)
- Full Refund: When performance becomes impossible (Hunan case)
- Fault-Based Apportionment: Considering parties' knowledge and role
FAQ Section
Q1: Can I legally invest in Bitcoin in China?
A: No. All virtual currency investment activities are prohibited as illegal financial operations per 2021 regulations.
Q2: What happens if my virtual currency contract gets voided?
A: Courts typically either: (1) order no remedy (investor bears loss), or (2) apply equitable solutions like partial refunds based on fault.
Q3: Are mined cryptocurrencies protected property?
A: Yes, as virtual property under Civil Code, but transactions may still be voided if violating regulations.
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Q4: Can I recover losses from fraudulent crypto investments?
A: Recovery depends on court interpretation. Recent trends favor denying claims to discourage participation in prohibited activities.
Q5: How do courts value virtual currencies in disputes?
A: Courts avoid direct pricing to prevent implicit recognition of exchangeability. Loss calculations typically use original investment amounts.
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Key Takeaways
- Virtual currency contracts face high invalidation risks under China's strict regulatory regime
- Judicial approaches balance property recognition with policy enforcement
- Investors face near-total loss exposure given "self-responsibility" precedents
- Evolving carbon neutrality policies introduce additional compliance layers
Note: All case citations and regulatory references are retained from original text with minimal paraphrasing to preserve legal precision.
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