Crypto Lending Activity: Not Recognized by Chinese Legal System

A recent ruling by a Chinese court has determined that crypto lending activity remains outside the scope of the country’s legal system. The Nanchang People’s Court issued a press release stating that lending virtual currency and seeking repayment do not fall under civil litigation. In the court’s view, “Virtual currency is different from digital RMB,” referring to the central bank digital currency issued by the Central Bank of China. The judge emphasized that virtual currencies, such as Bitcoin, Ethereum, and Tether, are not legal tender and cannot be used as currency in the market.

The case in question involved an individual known as “Mr. Ming” who lent 80,000 USDT to another individual named “Mr. Gang” for stablecoin trading. However, when Mr. Gang failed to repay the loan, Mr. Ming filed a lawsuit. Unfortunately for Mr. Ming, the court did not consider USDT as legally compensable since it was not issued in accordance with the law.

The Illegality of Crypto Transactions

The judge’s ruling highlights the overall illegal nature of crypto transactions, echoing concerns raised by the central bank. They argue that investing in virtual currencies and related derivatives that violate public order and good customs renders any resultant civil legal actions invalid. As a result, individuals and organizations engaging in these activities bear the responsibility for any resulting losses.

China has been cracking down on crypto-related activities, starting with the ban on Bitcoin mining in May 2021. This was followed by a comprehensive ban on all crypto transactions in September of the same year. The government cited concerns over economic instability and criminal activity as the reasons behind these measures.

Despite the restrictions, China continues to attract significant crypto volume. According to Chainalysis, the region received $86.4 billion in transactions between July 2022 and June 2023. Critics argue that the bans have been ineffective or loosely enforced. Although mining activity has decreased in China, the country still accounted for over 20% of global Bitcoin mining activity, even after the ban was implemented.

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