In a landmark decision, the Shanghai First Intermediate People's Court has delivered a nuanced and significant ruling on the legal status of cryptocurrency ownership in China. This case not only reaffirms the protection of individual rights to hold digital assets but also draws clear boundaries around what is legally permissible in the country’s tightly regulated financial landscape.
The judgment, upheld on appeal, centers around a 2018 incident where four individuals—Yan Dong, Lü Fang, Zhang Fei, and Fu Yun—used coercion to force American national Peter and his wife Wang Xiaoli to transfer 18.88 bitcoins and 6,466 Skycoins into accounts under their control. The perpetrators were criminally punished and initially promised to return the assets. When they failed to do so, Peter and Wang filed a civil lawsuit seeking restitution.
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Bitcoin Recognized as Protected Virtual Property
At the heart of this ruling is the court's explicit recognition of bitcoin as virtual property with legitimate value under civil law. The first-instance court ordered the defendants to return the exact amount of cryptocurrency or, failing that, compensate based on the market price from CoinMarketCap on June 12, 2018—42,206.75 yuan per bitcoin and 80.34 yuan per Skycoin.
On appeal, Peter voluntarily dropped the claim for Skycoins but insisted on recovering the bitcoins. The appellate court adjusted the judgment accordingly while maintaining the core principle: illegally obtained digital assets must be returned or compensated.
This outcome reinforces earlier precedents set by the Hangzhou Internet Court in 2018 and 2019, which recognized bitcoin’s commodity-like attributes and its status as protected virtual property under Chinese civil law. These rulings collectively confirm that while China does not recognize cryptocurrencies as legal tender, individuals may legally own them—and such ownership is enforceable in court when violated through unlawful means.
Key Legal Distinctions: Property vs. Currency
A critical takeaway from this case is the distinction between virtual property and legal currency.
While the court protects bitcoin as an asset, it does not endorse its use as money. Under current Chinese policy:
- Cryptocurrencies cannot circulate as payment instruments.
- Exchanges between fiat currency (like RMB) and digital tokens are strictly prohibited.
- Platforms facilitating such trades or providing pricing and brokerage services are operating outside legal boundaries.
This aligns with China’s long-standing stance since the 2017 ban on initial coin offerings (ICOs) and cryptocurrency exchanges. The government’s concern lies in preserving monetary sovereignty and preventing systemic financial risks. As such, digital yuan (e-CNY) remains the only state-sanctioned digital currency.
“The law protects your right to hold bitcoin—but not to spend it like cash.”
What This Means for Individual Holders
For private investors, this ruling offers reassurance: personal possession of bitcoin is not illegal, and your holdings are treated as property deserving legal protection against theft, fraud, or coercion.
However, this protection comes with limits:
- You cannot compel banks or payment systems to process crypto transactions.
- Trading platforms based in China remain non-compliant with domestic regulations.
- Using bitcoin for daily purchases violates central bank guidelines.
In essence, China adopts a “hands-off but eyes-on” approach: tolerate personal investment at your own risk, but no institutional support or financial integration allowed.
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Understanding the Compensation Mechanism
One frequently asked question is: If crypto trading is banned, why did the court use market prices for compensation?
The answer lies in contract and tort law principles. When stolen property cannot be physically returned (e.g., a sunken ship), courts may allow monetary substitution based on fair market value at the time of loss. Here, CoinMarketCap data served as an objective reference point—not an endorsement of the platform’s legality.
This valuation method reflects judicial pragmatism rather than regulatory approval. It enables dispute resolution without legitimizing prohibited activities.
Frequently Asked Questions (FAQ)
Q: Is owning bitcoin legal in China?
A: Yes. While cryptocurrency trading and issuance are restricted, personal ownership of bitcoin as virtual property is legally protected.
Q: Can I sue someone who stole my crypto?
A: Yes. As demonstrated in this case, civil courts can order return of assets or financial compensation if theft or coercion is proven.
Q: Are foreign crypto exchanges legal to use?
A: While individuals may access offshore platforms, doing so carries regulatory and operational risks. Chinese authorities have warned against such activities due to lack of oversight.
Q: Does this ruling mean crypto is now fully recognized?
A: No. Recognition is limited to civil property rights. Financial, banking, and monetary policies still treat cryptocurrencies as high-risk instruments outside formal economic channels.
Q: Can I get paid in bitcoin in China?
A: No. Wages, contracts, and commercial payments must be made in legal tender (RMB). Accepting bitcoin for services may violate anti-money laundering rules.
Q: Will this encourage wider crypto adoption?
A: Not necessarily. The ruling clarifies rights but doesn’t change broader restrictions. Institutional adoption remains unlikely without policy shifts.
The Bigger Picture: Regulation Without Endorsement
China continues to walk a fine line—supporting blockchain innovation while rejecting decentralized finance models that challenge centralized control. The government promotes blockchain for supply chain tracking, intellectual property, and public services—but draws a hard line at private digital currencies.
This duality explains public confusion:
- Blockchain = encouraged
- Bitcoin = tolerated but restricted
- Crypto trading platforms = banned
Many mistakenly believe that promoting blockchain equals endorsing bitcoin. They are not the same. One is infrastructure; the other is an application deemed incompatible with national monetary policy.
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Final Thoughts: Proceed with Caution
While this ruling marks progress in legal clarity, the crypto environment in China remains complex and risky. Judicial recognition of ownership doesn’t equate to regulatory approval or investor safeguards.
Before engaging with digital assets:
- Understand the difference between civil protection and financial legality.
- Avoid platforms offering RMB-crypto conversions.
- Consult qualified legal professionals before entering agreements involving crypto.
- Never assume that “protected” means “permitted” in all contexts.
As the space evolves, staying informed—not speculative—is key to navigating China’s unique digital asset landscape.
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