A Chinese court has once again deemed crypto lending beyond the protection of the country’s legal framework. This ruling, the second of its kind, raises questions about the legal standing of cryptocurrency-related transactions within China.
Background: Mr. Ming’s 80,000 Tether Loan
In April 2021, Mr. Ming extended a loan of 80,000 Tether to Mr. Gang for stablecoin trading. The agreement stipulated a repayment period of six months. However, when Mr. Gang defaulted on the loan, Mr. Ming sought legal recourse by taking his case to the Nanchang People’s Court.
In a press release dated October 10, 2023, the court’s decision highlighted a crucial point. Mr. Ming needed to establish Tether as a legally issued fiat currency to pursue judicial relief. The court, referring to legislation underpinning China’s crypto ban, maintained that without such proof, the lawsuit did not fall within the scope of civil litigation.
Court’s Verdict and Legal Implications
The Nanchang People’s Court, in its landmark decision, emphasized the inherent legal risks associated with virtual currency investment and trading. The verdict stated that if any entity engages in activities violating public order and good customs, civil legal actions in such cases would be deemed invalid, with resulting losses borne by the involved parties.
Mr. Ming appealed the decision, hoping to overturn the court’s ruling. However, the appeal was dismissed, reinforcing the court’s stance on the limited legal standing of crypto-related disputes. The presiding judge articulated that participating in virtual currency activities that run afoul of established laws carries inherent risks.
Broader Context and August Precedent
This ruling comes against the backdrop of China’s comprehensive ban on cryptocurrencies since late 2021. Citing environmental concerns and a lack of effective surveillance, the government has consistently reinforced its stance against crypto-related activities.
This decision echoes a similar ruling in August by the Changzhou Zhonglu People’s Court, which invalidated a $10 million Bitcoin crypto lending agreement. The court, in that case, asserted that due to the borrower’s default and the prohibited nature of crypto activities, judicial relief was not available to the lender.
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