Shanghai court recognizes crypto as property but bans business activities

The Shanghai High Court confirmed the value of cryptocurrencies as virtual commodities, ruling that cryptocurrencies have “properties” under Chinese law.

However, according to the court’s decision, the court upheld China’s strict ban on the use of cryptocurrency in commercial activities such as token issuance and speculative trading.

This decision stemmed from a dispute between an agricultural development firm and an investment management company over a failed token launch.

The case, decided by the Songjiang District People’s Court, highlights the ongoing tension between China’s recognition of crypto as property and its crackdown on crypto-related financial activities.

Court decision on token issuance dispute

The conflict dates back to 2017, when the cryptocurrency market boomed. The agricultural company, referred to in court documents as Company X, attempted to issue tokens and raise funds through a “Blockchain Incubation Agreement” with the investment firm identified as Company S.

According to the agreement, Company S is tasked with preparing a white paper and facilitating the issuance of tokens using blockchain technologies. Company X paid a service fee of 300,000 yuan ($41,000).

A year later, the tokens were not issued because Company S claimed that additional app development was required and the costs were not covered under the agreement. Frustrated, Company X sued to terminate the contract and recover its payment.

The court ruled that the agreement was invalid, arguing that China’s ban on token issuance was an illegal financial activity akin to unlicensed public fundraising. While both companies were deemed at fault, Company S was ordered to refund the service fee of 250,000 yuan to Company X.

Legal status of cryptocurrency in China

The court explained that although virtual currencies are considered property and are not expressly prohibited, commercial activities involving them remain illegal. This distinction underscores China’s broader policy to curb financial instability and criminal activities linked to cryptocurrencies, such as fraud and money laundering.

According to the decision, individuals can legally hold cryptocurrencies as personal assets. However, engaging in crypto-related business ventures exposes organizations to significant legal risks.

Crypto impacts in China

The court’s decision reflects China’s ongoing “high pressure” stance against speculative cryptocurrency activities aimed at preserving financial order.

The decision serves as a warning about the legal risks associated with participating in crypto transactions or launching token projects without proper authorization. Contracts found to violate financial regulations are likely to be deemed invalid, limiting legal recourse.

The judge overseeing the case emphasized the importance of strictly complying with financial laws to prevent such outcomes and served as a reminder for organizations navigating the legal landscape of cryptocurrencies in China.