Introduction
Blockchain technology has emerged as a groundbreaking innovation, capturing global attention for its transformative potential. As a derivative field of blockchain, digital currencies like Bitcoin have gained worldwide popularity while simultaneously sparking debates about their legal status. Recently, the Shenzhen Court of International Arbitration affirmed Bitcoin's property attributes in a landmark case involving equity transfer disputes with Bitcoin deliveries.
The arbitration tribunal explicitly stated that despite Bitcoin's unique characteristics as a virtual currency—particularly in possession control and rights transfer publicity methods—these distinctions don't negate its property attributes. Bitcoin can serve as a deliverable object between private parties and is entitled to legal protection. This article provides a concise analysis of the case, alongside China's existing regulations and judicial stance on virtual currency transactions.
Case Background
Two applicants entered into a Equity Transfer Agreement with the respondent, stipulating:
- Applicant 1 would transfer 5% equity shares of a company to the respondent for ¥550,000 (¥250,000 payable directly by the respondent)
- Applicant 2 (who entrusted the respondent with Bitcoin asset management) agreed to use portions of BTC/BCH/BCD investment returns to cover the remaining ¥300,000 transfer fee upon the respondent's contractual return of these assets
When the respondent failed to return the specified cryptocurrencies or make payments, the applicants initiated arbitration.
Key Arbitration Requests:
- Respondent to pay Applicant 1 ¥250,000 + complete 5% equity transfer
- Respondent to compensate Applicant 2 for 20.13 BTC/50 BCH/12.66 BCD losses ($493,158.40 + interest)
- Respondent to pay ¥100,000 penalty for breach
Arbitration Tribunal's Key Rulings
1. Validity of the Equity Transfer Agreement
Respondent's Argument: Bitcoin delivery arrangements violated China's prohibitions on digital currency circulation, rendering the contract invalid under the Announcement on Preventing Token Offering Financing Risks (banning ICOs and related illegal activities).
Tribunal's Decision:
The agreement involved Bitcoin return obligations—not token financing—and no laws prohibit private Bitcoin holdings or transactions. The contract remained valid and enforceable.
2. Breach Determination for Non-Delivery of Cryptocurrencies
Respondent's Defense:
- Legal prohibitions made delivery impossible
- Assets belonged to the company, not the respondent
Tribunal's Judgment:
Bitcoin's deliverability faces no legal barriers despite its virtual nature. Non-delivery constituted clear违约 (breach of contract).
3. Damage Calculation Methodology
Tribunal's Approach:
- Recognized Bitcoin's economic value and property attributes
- Applied Contract Law Article 113: damages based on market prices at the contractual fulfillment date
- Denied interest claims (cryptocurrencies aren't legal tender)
Legal Analysis & Regulatory Landscape
China's judicial system currently handles virtual currency disputes under two core principles:
- Contractual Autonomy Protection: Enforcing agreements that don't violate mandatory laws
- Investor Risk Awareness: Participants bear their own investment risks
Key Regulations:
| Document | Issuing Authority | Key Provisions |
|---|---|---|
| Notice on Preventing Bitcoin Risks (2013) | PBOC et al. | Bitcoin = virtual commodity (not legal tender); allows private risk-assumed trading |
| Announcement on Preventing ICO Risks (2017) | 7 ministries | Bans token financing activities and related financial services |
Critical Restrictions:
- Prohibits exchanges between fiat currency and virtual currencies
- Forbids financial institutions from servicing crypto-related operations
FAQs
1. Is Bitcoin legally recognized as property in China?
Yes. While not considered legal tender, arbitration rulings and judicial practices acknowledge its property attributes under civil law frameworks.
2. Can individuals legally trade Bitcoin privately?
Technically yes—if conducted as risk-assumed commodity transactions without involving financial institutions or public trading platforms. However, regulatory tolerance remains limited.
3. How are Bitcoin disputes resolved in Chinese courts?
Courts generally:
- Validate contracts without illegal elements
- Determine damages based on market prices
- Reject claims violating financial prohibitions
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Conclusion
This pioneering arbitration case establishes significant precedent for Bitcoin's legal treatment in China's evolving digital asset landscape. While recognizing cryptocurrencies' property rights, authorities maintain strict boundaries against institutionalized trading. Participants must navigate this complex environment with caution—leveraging contractual protections while respecting regulatory red lines.
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