Supreme Court of China Provides Crypto Framework for Legal Disputes

• The cryptocurrency used to pay off the obligation is not considered legal cash.
• Debts may be resolved in crypto if a contract requiring payment in such assets is in effect.

Since September 2021, crypto transactions and mining have been illegal in China. However, the prohibition has become more of a guideline in actual use.

Since its introduction, crypto taxation has been a topic of discussion among Chinese officials. In addition, a judgement decided in 2022 made it clear that residents may legally hold cryptocurrencies even while they were banned from use as a medium of exchange. To further debate how Chinese courts should handle disputes involving cryptocurrency, it may be taxed as an asset.

The Chinese Supreme Court has issued a statement saying that debts up to an unknown sum may be resolved in cryptocurrencies if a contract requiring payment in such assets is in effect and no other local laws preempt the agreement.

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

Severe Crackdown on Crypto Sector

Prior to the complete prohibition of crypto trading in 2021, the Chinese government repeatedly warned individuals of the dangers of doing so. The events of 2022 have shown that such warnings, however, seen as excessive at the time, were not entirely unfounded.

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

The country has often shifted its attitude on digital assets, so even while crypto trading is legally illegal in China, the continuous attention on the asset class might imply the rule could be repealed at some time in the future.