Supreme Court of China Establishes Crypto Framework for Legal Disputes

• Cryptocurrency used to settle obligations is not classified as legal tender.
• Debts may be settled in crypto if a contract mandating payment in such assets is in force.

Since September 2021, cryptocurrency transactions and mining have been prohibited in China. However, this ban has evolved into a guideline for practical application.

Crypto taxation has been a subject of discussion among Chinese officials since its introduction. Additionally, a 2022 ruling clarified that residents may legally hold cryptocurrencies even while they are banned from use as a medium of exchange. To further clarify how Chinese courts should handle disputes involving cryptocurrency, it may be taxed as an asset.

The Chinese Supreme Court has issued a statement indicating that debts of an unspecified amount may be settled in cryptocurrencies if a contract requiring payment in such assets is in effect and no other local laws preempt the agreement.

To clarify, the cryptocurrency used to pay off the obligation is not considered legal tender. If the aforementioned agreement is interpreted as such, it will be declared null and void by Chinese courts.

Severe Crackdown on Crypto Sector

Before the complete prohibition of crypto trading in 2021, the Chinese government repeatedly warned individuals about the risks involved. The events of 2022 demonstrated that such warnings, though perceived as excessive at the time, were not entirely unfounded.

Under the proposed law, the Chinese government would not provide legal aid to residents who suffered financial losses during the crypto winter.

The country has frequently shifted its stance on digital assets. Consequently, even though crypto trading is legally prohibited in China, the continuous attention paid to this asset class suggests that the rule could be repealed at some point in the future.