Dialogue with Huo Xiaolu: Future crypto regulatory situation, analysis of Zhao Dong case, OTC dynamics

Wu said author | Colin Wu

Editor of this issue | Colin Wu

1. First of all, congratulations to our old friend, Lawyer Huo, for getting a new job recently. Would you mind introducing your resume and new job to our readers?

Lawyer Huo: Thank you, Mr. Wu. Let me introduce you to Huo Yijie, a lawyer who mainly deals with criminal cases. You should be more familiar with the public account name "Huo Xiaolu". I have worked in the Shanghai procuratorial system for 7 years, mainly handling various criminal cases. After leaving the company, I worked in legal compliance work in an Internet listed company, and then became a lawyer. Now I have officially transferred to Shanghai Gelian Law Firm. The main business directions are: commercial crime and corporate compliance, criminal defense, dispute resolution; the featured industry fields are: Internet industry, financial technology industry.

2. Recently, China's cryptocurrency industry has ushered in strong regulation, requiring "cracking down on Bitcoin mining and trading, and resolutely preventing individual risks from spreading to the social field." What do you think of this regulatory storm and what do you expect it to do in the future?

Lawyer Huo: A core node of this regulatory storm is the 51st meeting of the Financial Committee of the State Council on May 21. The focus should be on the word "crackdown". Based on my experience of working in the system, I know that the system is still cautious in deliberating on some documents. The final word "crackdown" was used this time, rather than "orderly withdrawal" and other mitigating words, which shows the determination of the regulatory authorities. Administrative agencies have always strictly implemented the top-down approach, at least in the general direction. In addition, the current high incidence of financial risks and crowd risks. Therefore, in the short term (within 1-2 years), it will still be a trend of strict supervision, and the possibility of a one-size-fits-all approach is relatively high.

3. Recently, the deputy governor of the central bank mentioned the risks of stablecoins in detail for the first time. Is it possible to crack down on stablecoins such as USDT in the future?

Lawyer Huo: As a global stablecoin, USDT faces two main risks: financial and legal. The central bank initially considered monetary policy and its impact on legal tender. As USDT’s use in illegal activities such as speculation, payment, gambling and money laundering gradually becomes more prominent, it is attracting more attention from regulators, which has both advantages and disadvantages for the industry. The currency circle is still a niche group with few professional investors, and outsiders also need to continuously strengthen their comprehensive understanding of the circle. From this perspective, it is a good thing to attract attention. However, once a currency or the entire industry has formed a certain scale and system, it is difficult to reflect its positive effects, and crackdowns may be inevitable.

4. The Zhao Dong case has attracted much attention, but it seems that the case will end smoothly. What do you think of this case and the risks faced by Chinese OTC traders?

Lawyer Huo: The official facts of Zhao Dong’s case have not been disclosed. According to relevant media reports, the 2kw+ turnover involved, the 30,000+ profit amount, and the suspended sentence are obviously far from enough to deter the industry compared with the daily OTC business.

The biggest risk for OTC merchants still comes from the disposal of funds. The first is the review of the source of funds. This part of the work is the basic obligation of OTC merchants. If they neglect to review, or help to deal with the funds knowing that they are illegal proceeds, they are likely to be suspected of assisting information network criminal activities, covering up and concealing the proceeds of crime, etc. The second is the issue of exchanging funds. If foreign exchange is involved, it may also be suspected of illegal business operations, etc.

5. There is a view that the government may require the complete closure of RMB OTC in the future, but this may also lead to it going underground, making it more difficult to combat suspected telecommunications fraud and money laundering. What do you think?

Lawyer Huo: It is better to unblock than to block, and everyone understands this truth. The road to embracing compliance supervision is long. The government's crackdown ideas can refer to the concepts of "assisting in the crime of trust" and "card-cutting activities". It is precisely because telecommunications fraud is rampant, the stolen money is transferred quickly, and it is difficult to crack down on it that the focus has shifted to cracking down on "people who provide cards". Whether the industry will be completely closed can only be answered by the industry itself. Take the early P2P as an example. From the initial thriving and vigorous development, to wild growth and disorderly operation, to almost cutting leeks, the end can only be-leaving the market in disgrace. Back to OTC, the potential risks of closure vs. the disadvantages of continuing to operate, when the latter is far greater than the former, how to choose, the answer is self-evident.

6. The digital RMB is in full swing, and a white paper has also been released, but it seems that in some official descriptions, it is opposed to cryptocurrencies, or is used as a response to the challenges of cryptocurrencies/stablecoins. As the official focus on promoting the digital RMB, will it have a negative effect on cryptocurrencies/blockchains?

Lawyer Huo: The core of the official attitude is still due to the public's lack of understanding and the repeated hype in the cryptocurrency circle. The promotion of digital RMB is the general trend, but every official push will attract a wave of "half-understanding", causing the official to make strict distinctions and even confrontations. It seems that in the early years, when the development of blockchain was mentioned, the media would promote the benefits of the cryptocurrency circle; when it came to protecting virtual property, the media said that cryptocurrency was protected by law.

But in principle, the promotion of digital RMB will not have a negative effect on cryptocurrency/blockchain. As a technology, blockchain still has a lot of room for development. As an investment product, cryptocurrency does not conflict with digital RMB, but it will cause financial risks and asset outflow in some illegal areas.

7. Recently, there have been rumors from various places that in civil cases, contract disputes involving cryptocurrencies are no longer recognized. Will this become the norm?

Lawyer Huo: This is a very good question. There are many examples of different judgments on civil disputes involving virtual currencies. The core reason is that the courts in different places have different understandings. This may be related to the judgment of the judges on policy documents and relevant precedents. Some regions have updated their judgment ideas in line with the times because they have conducted more research on virtual currency disputes; other regions may still refer to judgments from 2 or 3 years ago. It is also based on the above reasons that I have always emphasized that before there is a unified understanding in the country, relevant personnel must find the right jurisdiction when seeking litigation solutions. The Beijing High Court made a second-instance judgment this year, which recognized the currency-to-currency transaction between two natural persons. I believe that a few more similar judgments will play a good exemplary role in the handling of similar cases. Finally, I remind you again that each case is different, and details determine success or failure. Consult professional and knowledgeable lawyers in a timely manner to safeguard your legitimate rights and interests.

Welcome to read Wu's selected reports: Huobi exclusive report, Binance exclusive report, Bitmain series, supervision and card freezing series, Filecoin series, currency circle chaos exposure, mining farm supervision dynamics, etc.

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