Controversy Over China’s First Criminal Case Involving Issuance of Virtual Currency: Does Withdrawal of Liquidity Leading to Losses Constitute Fraud?

News Agency (Asia-Pacific) reports that according to Chinese media, a post-2000 university student named Yang Qichao issued a virtual currency abbreviated as BFF on a public blockchain overseas. His withdrawal of liquidity led to a prison sentence. The Chinese prosecution accused Yang of issuing fake virtual currency, misleading others to deposit 50,000 USDT (a stablecoin) and then quickly "withdrawing funds," causing others to lose 50,000 USDT. This behavior was deemed fraudulent.

On February 20, the People’s Court of the Nanyang High-tech Industrial Development Zone in Henan province found Yang guilty of fraud in the first trial, sentencing him to four years and six months in prison and fining him 30,000 RMB.

On May 20, the case was heard in the second instance at the Nanyang Intermediate People’s Court. Yang's defense lawyer continued to argue for his innocence, stating that the virtual currency issued by Yang had a unique and immutable contract address, thus there was no "fake currency." Both the defendant and the complainant were experienced players in the cryptocurrency world, fully aware of the risks involved in trading virtual currency.

Furthermore, the platform allowed for the addition or withdrawal of liquidity at any time, and the defendant’s actions did not violate platform rules. The victim’s BFF coins appreciated in value after the incident due to increased liquidity, and if traded, they could have been exchanged for more USDT than before, indicating no actual loss.

Recently, several regions in China have issued warnings. The official WeChat account of Shanxi Province’s Anti-Illegal Fundraising Office recently reminded the public to be wary of illegal fundraising activities disguised as "blockchain" projects. The article stated that in recent years, illegal fundraising has often used the guise of "blockchain" and "financial innovation" to absorb funds through the issuance of so-called "virtual currency," "virtual assets," and "digital assets," infringing on public rights.

These activities are not genuinely based on blockchain technology but rather exploit the concept to conduct illegal fundraising, pyramid schemes, and fraud. China currently does not recognize the legal status of virtual currencies, and any token issuance financing activities are illegal. No trading platform in China is permitted to engage in the exchange of legal currency with tokens or "virtual currency," nor can they buy, sell, or provide pricing or intermediary services for tokens or "virtual currency."

Such activities, under the pretense of "financial innovation," are essentially Ponzi schemes reliant on new investments to pay returns to earlier investors, making it difficult to sustain operations in the long term. The public is advised to view blockchain rationally, not to blindly believe in grand promises, to adopt correct monetary and investment concepts, and to enhance their awareness of risk prevention to avoid being deceived.

Additionally, the Local Financial Supervision and Administration Bureau of Shenzhen issued a "Risk Warning on Virtual Currency Trading and Speculation," warning that virtual currencies lack a clear value basis, are prone to malicious speculation and price manipulation, and that illegal enterprises may use virtual currency or "overseas digital options" as gimmicks to engage in illegal fundraising and fraud activities.

Amid a recent resurgence in virtual currency trading speculation, this risk warning pointed out that some groups use virtual currency and "overseas digital options" to lure people into trading, disrupting economic and financial order, breeding gambling, illegal fundraising, fraud, pyramid schemes, and money laundering, seriously jeopardizing the safety of people’s property.