Shanghai court recognizes crypto as property but bans business activities

The Shanghai High Court has ruled that cryptocurrencies possess “property attributes” under Chinese law, affirming their value as virtual commodities.

However, the court upheld China’s strict prohibition on using crypto for commercial activities such as token issuance and speculative trading, according to the court’s ruling. 

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

The case, adjudicated 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 rules on token issuance dispute

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

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

A year later, the tokens had not been issued, with Company S claiming additional app development was necessary—costs not covered under the agreement. Frustrated, Company X sued to terminate the contract and recover its payment.

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

Legal status of crypto in China

The court clarified that while virtual currencies are considered property and are not explicitly banned, business activities involving them remain illegal. This distinction underscores China’s broader policy of curbing financial instability and criminal activities tied to cryptocurrencies, such as fraud and money laundering.

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

Crypto implications in China

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

The judgment 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 strict compliance with financial laws to avoid such outcomes, serving as a reminder for entities navigating the legal landscape of cryptocurrencies in China.