In recent years, digital assets like Bitcoin have surged in popularity, attracting both retail and institutional investors. However, as the market grows, so do legal questions surrounding their status—particularly: Are cryptocurrencies legally recognized as property? And if so, are they protected under the law?
A landmark case heard by the Hangzhou Internet Court on May 22 has reignited this debate. The case involved Mr. Wu, who purchased 2.675 bitcoins five years ago through "FXBTC," a cryptocurrency trading platform operated by a Shanghai-based tech company. In May 2017, when Mr. Wu attempted to log into the platform again, he discovered it had abruptly shut down—with no prior notice and no way to contact the operators.
Believing that the company’s failure to warn users caused irreversible financial loss, Mr. Wu filed a lawsuit seeking compensation for his inaccessible digital assets.
This case highlights a growing legal challenge in the digital economy: how should courts treat virtual property, particularly cryptocurrencies like Bitcoin, Litecoin, and others?
Understanding Bitcoin and Virtual Currencies
Bitcoin was introduced in 2009 as a decentralized, peer-to-peer digital currency built on blockchain technology. It is generated through complex computational processes—commonly known as mining—and has a capped supply of 21 million coins. This scarcity contributes to its value and appeal as an investment asset.
While Bitcoin functions similarly to traditional currencies in some ways—such as being used for transactions or held as savings—it differs fundamentally because it is not issued or backed by any government or central authority.
Globally, regulatory approaches vary. Countries like the United States and Japan recognize Bitcoin as a legal financial instrument, allowing exchanges to operate under regulated frameworks and enabling conversions with fiat currencies. Some businesses even accept Bitcoin as payment.
But in China, the regulatory stance remains cautious.
The Legal Status of Cryptocurrency in China
According to the Notice on Preventing Bitcoin Risks, jointly issued by the People’s Bank of China and other regulatory bodies in September 2013, Bitcoin is defined as a "virtual commodity" rather than legal tender. This means:
- It cannot be used as currency in everyday transactions.
- Financial institutions and payment service providers are prohibited from offering services related to Bitcoin trading or settlement.
- Platforms like Taobao banned the sale of Bitcoin and similar virtual tokens starting January 14, 2014.
However, the notice does not criminalize individual ownership or trading of cryptocurrencies. Ordinary citizens may buy, hold, or transfer Bitcoin at their own risk. As long as individuals do not engage in illegal fundraising or money laundering, personal participation in the crypto market is considered a form of civil activity—specifically, the buying and selling of virtual goods.
So while institutions are restricted, individuals retain limited freedom to participate in the cryptocurrency ecosystem.
Is Bitcoin Considered Property Under Chinese Law?
Yes—with important caveats.
Although Bitcoin lacks physical form, it exhibits key characteristics of property: scarcity, exchange value, and controllability. Users invest real money to acquire it, store it in digital wallets, and can transfer it across borders. These features support its classification as a virtual asset.
Crucially, Article 127 of China’s Civil Code (formerly addressed in the General Provisions of the Civil Law) explicitly recognizes virtual property as a protected civil right. This provides a legal basis for individuals to claim ownership and seek remedies when their digital assets are wrongfully taken or inaccessible due to third-party negligence.
In Mr. Wu’s case, the court must determine whether the FXBTC platform fulfilled its obligations before shutting down. If the operator failed to issue timely warnings or allow users sufficient time to withdraw their holdings, it could be deemed a breach of contract—making them liable for damages.
On the other hand, if proper notice was given—such as publishing a shutdown announcement well in advance—the platform may be absolved of liability, assuming no further misconduct occurred.
Distinguishing Legal Investment from Illegal Activities
It's essential to differentiate between personal cryptocurrency investment and illegal token financing activities.
The 2013 notice primarily targets Initial Coin Offerings (ICOs) and similar models where companies issue digital tokens to raise funds in Bitcoin or Ethereum. These practices are classified as unapproved public financings and may involve fraud, pyramid schemes, or securities violations.
Such activities are strictly banned. But again, this prohibition does not extend to individual investors simply buying or holding cryptocurrencies for personal purposes.
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Frequently Asked Questions (FAQ)
Q: Is owning Bitcoin illegal in China?
No. While financial institutions are barred from handling Bitcoin transactions, individuals can legally own and trade Bitcoin as a virtual commodity—as long as they assume full responsibility for associated risks.
Q: Can I sue if my cryptocurrency exchange shuts down?
Yes, if the platform failed to notify users or prevented access to funds without justification, you may have grounds for legal action based on breach of contract or negligence.
Q: Does Chinese law recognize cryptocurrency as property?
Yes. Virtual property—including cryptocurrencies—is protected under Article 127 of the Civil Code, provided the assets were acquired legally.
Q: What happened in the FXBTC lawsuit?
An investor sued a now-defunct exchange after losing access to 2.675 bitcoins due to an unexpected shutdown. The case centers on whether the company violated its duty to inform users before closing.
Q: Can I get compensation if my crypto is lost?
Compensation depends on the circumstances. If a third party (like an exchange) is at fault due to negligence or breach of contract, recovery may be possible through civil litigation.
Q: How can I protect my digital assets legally?
Use reputable platforms, keep records of transactions, enable two-factor authentication, and consider legal documentation for large holdings. Staying compliant with local laws also strengthens your position in potential disputes.
Final Thoughts: The Future of Crypto Legal Protection
As digital assets become more embedded in global finance, legal systems must evolve to address ownership, custody, and liability issues. While China maintains tight control over financial stability and capital flows, it also acknowledges the reality of virtual property rights.
The outcome of cases like Mr. Wu’s could set important precedents for how courts handle disputes involving decentralized assets. For now, one thing is clear: even if not recognized as currency, cryptocurrencies can still qualify as legally protected property—so long as they are obtained and used within the boundaries of existing regulations.
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As blockchain technology advances and adoption widens, expect more comprehensive legislation that balances innovation with consumer protection. Until then, investors must remain vigilant—navigating both market volatility and legal uncertainty with informed caution.