Beijing Arbitration Commission determines that Bitcoin is virtual property and is protected by law

Recently, I was entrusted to manage a Bitcoin dispute case as the respondent's attorney. The Beijing Arbitration Commission made a ruling to dismiss all the applicant's arbitration requests.

Regarding the dispute over whether the contract for entrusting the purchase of Bitcoin is valid, the arbitration tribunal held that the contract in this case is not an illegal contract, nor does it violate public order and good morals, and is not invalid. Instead, it is a legal and valid contract for the following reasons:

First, virtual currencies, including Bitcoin in this case, are virtual property and are protected by law. Article 127 of the Civil Code stipulates that if there are legal provisions for the protection of data and network virtual property, such provisions shall be followed. At present, there are no laws and administrative regulations in China that stipulate that virtual currencies, including BTC, are prohibited from circulation and cannot be traded.

Secondly, Article 153 of the Civil Code stipulates that civil acts that violate the mandatory provisions of laws and administrative regulations are invalid. However, the mandatory provisions do not invalidate the civil acts. Civil acts that violate public order and good morals are invalid. At present, there are no laws and administrative regulations in China that prohibit Bitcoin trading activities.

Thirdly, the Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation (Yinfa [2021] No. 237) issued by the People's Bank of China and other ministries and commissions on September 15, 2021 did not prohibit all trading activities with virtual currency as the subject, but prohibited virtual currency-related business activities as illegal financial activities. The second paragraph of Article 1 of the Notice clearly stipulates: "Virtual currency-related business activities such as the exchange of legal currency and virtual currency, the exchange of virtual currencies, the purchase and sale of virtual currency as a central counterparty, the provision of information intermediary and pricing services for virtual currency transactions, token issuance financing, and virtual currency derivatives transactions are suspected of illegal financial activities such as illegal issuance of token tickets, unauthorized public issuance of securities, illegal operation of futures business, and illegal fundraising. They are all strictly prohibited and resolutely banned in accordance with the law. Those who engage in related illegal financial activities that constitute a crime shall be held criminally liable in accordance with the law."

On September 4, 2017, the Announcement of the People's Bank of China, the Central Cyberspace Affairs Commission, the Ministry of Industry and Information Technology, the State Administration for Industry and Commerce, the China Banking Regulatory Commission, the China Securities Regulatory Commission, and the China Insurance Regulatory Commission on Preventing Risks of Token Issuance and Financing also prohibits illegal token issuance and financing activities. According to the definition in Article 1 of the Announcement, token issuance and financing refers to the financing subject raising so-called "virtual currencies" such as Bitcoin and Ethereum from investors through the illegal sale and circulation of tokens. It is essentially an act of illegal public financing without approval, and is suspected of illegal sale of token tickets, illegal issuance of securities, illegal fundraising, financial fraud, pyramid schemes and other illegal and criminal activities. "However, the contract in this case is between natural persons, one party entrusts the other party to manage virtual currency, and the two parties are in a commission contract relationship, that is, the applicant is the principal, the respondent is the trustee, and the two parties agree that the trustee manages virtual currency for the principal. The contract in this case is not an illegal financial activity and token issuance and financing activity explicitly prohibited by the above documents, and the above provisions do not apply. Therefore, the contract in this case did not violate the above provisions and there was no violation of public order and good morals.

The lawyer believes that the ruling of the Beijing Arbitration Commission is in line with the meaning of the "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation". The "Notice" stipulates: "Virtual currency does not have the same legal status as legal currency... It should not and cannot be circulated and used as currency in the market." It only emphasizes that it cannot be circulated as "currency", but does not completely prohibit it from being traded as virtual property. The "Notice" stipulates: "Virtual currency-related business activities are illegal financial activities. Carrying out virtual currency-related business activities such as... and suspected of illegal financial activities such as... are strictly prohibited and resolutely banned in accordance with the law. For those who carry out related illegal financial activities that constitute a crime, criminal liability shall be pursued in accordance with the law." In other words, only "related" businesses suspected of illegal financial activities should be regulated, not all businesses. In addition, how to understand the term "business" also needs further discussion. At the very least, the act of entrusting custody is not suspected of illegal financial activities, and it can be done unless prohibited by law. The Notice stipulates: "If any legal person, non-legal person organization or natural person invests in virtual currency and related derivatives and violates public order and good morals, the relevant civil legal acts will be invalid, and the losses caused by this will be borne by themselves." Only if the investment behavior violates public order and good morals can the relevant civil legal acts be invalid. In other words, if the investment behavior does not violate public order and good morals, the civil behavior is valid, and the consequence of being valid is that it is protected by law. It should be noted that if all civil legal acts of investing in virtual currency and related derivatives are considered invalid, there is no need to add the phrase "violate public order and good morals".