The Nanchang People’s Court in China has issued a significant ruling, marking the second instance in the country where the legal system has deemed crypto lending as an activity falling outside its protection. The court’s decision, outlined in a press release on October 10, revolves around a lawsuit filed by an individual using the alias Xiao Ming against another individual referred to as Xiaogang.

According to the court documents, in April 2021, Xiaogang borrowed money from Xiao Ming, expressing the intention to engage in speculation with USDT coins. Xiaogang committed to repaying the loan within six months. To facilitate the transaction, Xiao Ming converted over 550,000 yuan into more than 80,000 USDT coins, which were then provided as a loan to Xiaogang. However, when the agreed-upon timeframe expired, Xiaogang failed to fulfil the repayment terms, prompting Xiao Ming to initiate a legal action by filing a lawsuit in court.

The initial judgement ruled against the plaintiff, Xiao Ming, prompting an appeal to the second-instance court. However, the appeal was also dismissed, and the original judgement was upheld. The crux of the court's decision hinged on the requirement for the plaintiff to prove that Tether is a legally issued fiat currency to qualify for judicial relief. Since this proof was not provided, the court deemed the lawsuit outside the appropriate scope of civil litigation.

The presiding judge emphasised the legal risks associated with engaging in virtual currency investment and trading activities. The judge highlighted that any investments in virtual currencies and related derivatives that violate public order and good customs would render the relevant civil legal actions invalid, and the resulting losses would be borne by the lender.

This ruling follows a broader trend in China, where crypto-related activities face increasing scrutiny and legal challenges. In May 2021, China had already imposed a ban on financial institutions and payment companies from providing services related to cryptocurrency. The People’s Bank of China emphasised the need to clamp down on virtual currency speculation to protect individuals' properties.

The recent court decision underscores the authorities' commitment to maintaining a strict stance against virtual currency activities that fall afoul of legal and regulatory frameworks.

Crypto bans in China

This legal landscape in China aligns with the broader ban on cryptocurrencies imposed in late 2021, citing concerns over environmental impact and the lack of effective surveillance. The Changzhou Zhonglu People’s Court, in a separate ruling from August, invalidated a $10 million Bitcoin lending agreement. The court ruled that the lender had no means of judicial relief due to the borrower’s default, given that crypto activities are prohibited within the country.

In August, a Chinese court also sentenced a former high-ranking official to life in prison for his role in supporting a cryptocurrency mining operation in Fuzhou.