Regarding virtual currency transactions, which model involves illegal business operations?

Recently, friends in the virtual currency circle have sent private messages from home and abroad asking: In China, which virtual currency trading models will be treated as illegal business operations? Regarding this question, Sister Sa gave a brief reply, please pay attention to the legal red line and do not test the law.

There are not many legal modes, but there are

From the perspective of existing laws and regulations + judicial practice, the legal characterization of Bitcoin as a "specific virtual commodity" has not changed. Sister Sa believes that the Civil Code also allows Chinese people to hold Bitcoin. This is a prerequisite for virtual currency to have a living space in China.

Currently, there are two legal business models involving virtual currency. One is the virtual currency wallet business, which is to maintain the security of virtual currency and provide solutions to block hacker attacks; the other is OTC, exchanging coins for coins. Since these two models are legal, providing information intermediary services or other technical services for these two models is legally tolerated.

However, the provision of value-added services by wallets, such as "regular interest", is not permitted by Chinese law. The reason is that the 9.4 announcement negated the financial attributes of virtual currency, so any financial service involving virtual currency is generally suspected of being illegal, but the degree is different.

USDT\USDC may be recognized as "legal currency"

Sister Sa chatted with several prosecutors and judges, and there is a consensus that "foreign money is also legal tender". This has a legal basis, so we will not elaborate on it. Now we are concerned about whether stablecoins such as USDT are legal tender. From the perspective of administrative law in the strict sense, of course, a virtual currency anchored to the US dollar cannot be regarded as legal tender. However, from a substantive perspective, it is one-to-one anchored to the US dollar and has liquidity and payment and settlement functions. In the field of criminal law, USDT is likely to be regarded as legal tender.

Therefore, any business that uses stablecoins for counter-trading (in violation of the Foreign Exchange Management Regulations) may be deemed to be an illegal business operation in violation of Article 225 of the Chinese Criminal Law.

The problem of digital currency lending

In July 2019, the Supreme People's Court, the Supreme People's Procuratorate, the Ministry of Public Security, and the Ministry of Justice jointly issued the "Opinions on Several Issues Concerning the Handling of Criminal Cases of Illegal Lending". To summarize: Violating national regulations, lending money 10 times to an unspecified number of people within two years for the purpose of profit without the approval of the regulatory authorities, and the interest rate exceeding an annualized rate of 36% (recently revised regulations, now an annualized rate of 15.4%) is illegal usury and suspected of illegal business operations.

Due to the different legal characterizations of virtual currencies such as Bitcoin, mainstream currencies such as Bitcoin are "specific virtual commodities"; while the native tokens of ICOs are "data". Neither of them has the legal status of "funds". However, since stablecoins are directly linked to legal currencies, and mainstream currencies such as Bitcoin also have a relatively mature market, in practice, there is still a high probability that digital currencies will be truly regarded as "currency", and the issuance of various virtual currencies will also be treated as illegal lending. However, the various native tokens of the ICO of the grass-roots team will not be treated as currency, and it is very likely that they will be treated as fraud.

Final Thoughts

The hedging business of virtual currency may involve "illegal futures business". If the quantitative business of virtual currency colludes with the exchange, it may involve fraud. ICO itself will not violate the crime of unauthorized issuance of stock securities under Chinese law.

Well, that’s all for today, thanks for the readers!!