Chinese Court Decision Signals Possible Policy Reversal On Crypto

A local court in Xiamen, southeastern China, has issued an opinion stating that cryptocurrency should be considered property under China's legal framework.

Despite Beijing's ongoing crackdown on digital assets, the court argued that cryptocurrency possesses "economic attributes," including utility and exchange value.

It emphasised that crypto's value objectively exists as it is legally circulated in overseas markets, and people should retain their rights to own it unless used for illegal activities or gained unlawfully.

This opinion adds complexity to China's stance on cryptocurrency, which has seen contradictory regulatory actions in recent years.

In September 2021, Chinese government agencies declared a wide range of crypto activities as illegal financial conduct, including trading and mining. However, the statement did not categorise crypto ownership itself as unlawful. This itself followed an earlier ban that prohibited financial institutions and payment companies from providing crypto-related services.

China has also been cracking down on crypto-related crime, with a former governor being sentenced to life imprisonment for his role in a crypto mining operation.

Hong Kong, a Special Administrative Region of China, has taken a different approach by seeking to establish clearer rules for digital assets.

It introduced a licensing program for crypto firms serving retail clients, attracting registrations from exchanges and digital asset operators. One legislator in particular capitalised on US regulatory crackdowns to invite prominent exchanges to set up shop in Hong Kong.

Hong Kong's High Court also ruled that crypto should be treated as property, similar to other intangible assets like stocks and shares. The court argued that crypto property rights should be protected except when the virtual asset is used for crimes or was acquired illegally.

Asia as the next crypto hub?

China's stance on cryptocurrency is in contrast to other countries in Asia. While some Asian nations have imposed regulations on digital assets, others have embraced them. For instance, Singapore has developed a supportive regulatory framework for cryptocurrency, positioning itself as a hub for crypto-related businesses. Japan also has established legal guidelines for cryptocurrencies, recognizing them as a legal form of payment.

Globally, the regulatory landscape for cryptocurrencies varies widely. Some countries have embraced digital assets, providing clear legal frameworks and fostering innovation. Others have taken a cautious or restrictive approach, imposing bans or strict regulations. The recognition of cryptocurrencies as property, like in China and Hong Kong, is not consistent worldwide.

China's evolving stance on cryptocurrency reflects the ongoing debate within the country regarding digital assets' legal status. Despite a blanket ban on cryptocurrencies imposed by Beijing in 2021, many Chinese courts have recognized virtual asset holders' property rights.

In recent years, China's government has shown contradictory approaches to cryptocurrencies, with some officials advocating for the protection of crypto holders' rights while others support the ban on crypto activities. Meanwhile, Hong Kong's more open approach to crypto has attracted attention, potentially serving as a pilot zone for future mainland China crypto policies.

Despite regulatory uncertainty, China remains a significant market for cryptocurrencies, with substantial trading volumes reported even after the ban. This ongoing debate and evolving regulatory landscape underscore the global challenges and opportunities presented by cryptocurrencies.