People's Court Daily: The Chinese government should introduce virtual currency regulations as soon as possible, and the encryption ban may be lifted

The People’s Court News has published an article titled “Regulating Cryptocurrency Judicial Disposal”, highlighting the urgent need for clear legal guidelines for handling digital currencies. This report, overseen by China’s Supreme People’s Court, suggests a potential shift from outright prohibition to a regulatory approach for cryptocurrencies.

China’s Cryptocurrency Legal Landscape: A Surge in Case Value Despite Fewer Cases in 2023

The article notes that virtual currencies have become a significant issue in China’s legal system. By the end of 2022, the total amount of cryptocurrency pending judicial disposal in China surpassed billions of dollars, involving major cryptocurrencies like Bitcoin, Ethereum, and USDT.

According to SAFEIS, 428 cryptocurrency-related criminal cases were reported in China in 2023, a reduction of about 88.9% from 2022. However, the total value of these cases amounted to 430.7 billion yuan (approximately 60.6 billion dollars), representing a twelve-fold increase compared to the previous year.

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Challenges in Managing Seized Cryptocurrencies: Legal Constraints and Proposed Disposal Methods in China

Handling these digital assets poses considerable difficulties for judicial authorities. Past regulations, including the 2017 announcement on token issuance risks and the 2021 notice on virtual currency trading risks, have classified cryptocurrencies as illegal financial instruments.

Despite these restrictions, judicial bodies face challenges in managing seized cryptocurrencies due to existing legal constraints, leading to large amounts of digital assets being locked and not converted into liquid funds.

Local governments have suggested various disposal methods such as negotiation for recovery, prioritised auctions, and entrusting third-party institutions. However, these methods still present compliance risks.

Legal Issues in Cryptocurrency Disposal

The article identifies several key issues:

• Ownership Confirmation: Determining ownership in the anonymous environment of cryptocurrency transactions is a major challenge.
• Valuation: Fluctuating market conditions complicate the valuation of cryptocurrencies. Choosing the right time to assess their value is critical.
• Monetisation: Selecting the best time and method for converting digital assets into cash while managing market risks is a significant challenge.

The piece also highlights a dilemma where the legal system's denial of cryptocurrency as property conflicts with its acknowledged value in case handling.

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The report advocates for the prompt development of comprehensive judicial guidelines on cryptocurrency disposal. Such guidelines should cover various aspects including legal status, compliance requirements, asset disposal procedures, and legal responsibilities.

The move towards regulation could reflect a recognition of the growing importance and value of cryptocurrencies. However, without clear guidelines, the shift may lead to inconsistent practices and continued legal ambiguities.