Are Cryptocurrencies Legal in China?

In an article published last week on the Shanghai High People's Court's WeChat account, Judge Sun Jie characterized cryptocurrencies as "virtual commodities with property attributes" under Chinese law. Her analysis distinguishes personal holdings from China's strict prohibitions on trading and commercial activities.

Sun reviewed a 2017 contract dispute in which a court voided an agreement between companies planning unauthorized cryptocurrency token issuance. During Bitcoin's price surge at the time, a Chinese investment firm agreed to help an agricultural company launch its own cryptocurrency.

The 300,000 yuan contract covered the creation of a white paper and technical implementation using Bitcoin and Ethereum's blockchain technology. When the investment firm later demanded additional app development from the agricultural company, the project collapsed. The court invalidated the entire agreement as an unauthorized financial activity, though it ordered a 250,000 yuan refund.

While laws explicitly ban crypto businesses, trading, and token issuance - as shown by the voided contract - no provision prohibits individual ownership:

"Although it is not illegal for individuals to hold cryptocurrency, commercial entities cannot participate in virtual currency investment transactions or issue their own tokens."

The government's relationship with cryptocurrency shows a decade of increasing restrictions. In 2013, China barred financial institutions from handling crypto transactions. In 2017, authorities banned cryptocurrency exchanges and initial coin offerings. The most sweeping action came in 2021, when the government outlawed all crypto businesses, declared trading illegal, and forced mining operations to shut down.

Yet crypto activity continues to thrive in mainland China despite the bans. Chinese mining operations still control around 55% of Bitcoin's global hash rate, with farms running in remote areas, according to data shared by Ki Young Ju, founder and CEO of CryptoQuant, on X. Traders access international markets through VPNs, while a robust peer-to-peer network operates through social media (WeChat) and payment apps (Alipay).

"Virtual currency trading speculation activities will not only disrupt economic and financial order, but may also become payment and settlement tools for illegal criminal activities, breeding money laundering, illegal fundraising, fraud, pyramid schemes and other illegal criminal activities," Sun said.

The judge's statements underscore a peculiar dynamic: while individual Chinese citizens can legally own cryptocurrencies, they cannot legally acquire, trade, or use them. Any disputes arising from crypto transactions will find no protection in Chinese courts, as Sun emphasized:

"Any legal person, non-legal person organization and natural person investing in virtual currency and related derivatives that violates public order and good morals will find their civil legal acts invalid."

This legal limbo hasn't deterred participation. Trading groups operate openly on messaging platforms, miners maintain operations despite periodic crackdowns, and investors continue seeking exposure to digital assets through various channels. Last month, Beijing hosted SWIFT's Sibos, the world's biggest financial conference, which focused on tokenization and the future of DeFi. The gap between official policy and market reality reveals the challenges Chinese authorities face in controlling DeFi technology.