In the current era of booming digital economy, cryptocurrencies have attracted widespread attention due to their unique technical features and market influence. However, numerous legal issues surrounding cryptocurrencies have also emerged, among which the most crucial ones are whether cryptocurrencies are “property” or “data”, and how the law determines them. At the same time, the frequent characterization of cryptocurrency trading as “cross-border foreign exchange conversion” is also worth in-depth exploration. Individual investors need to be more clear about the legal risks and precautions involved.
The dilemma of defining the legal attributes of cryptocurrencies
In related fields, concepts such as cryptocurrencies, crypto assets, and digital currencies are often used in confusion, making it difficult for all parties to reach a consensus on the attributes of cryptocurrencies. Judicial authorities have different attitudes towards this, and there is no definite conclusion in the academic circle either. From the perspective of Chinese law, different departments of law have different positions for cryptocurrencies.
At the civil law level, cryptocurrencies are neither currencies nor securities. However, civil legislation and judicial practice have affirmed its virtual property attribute. Article 127 of the Civil Code provides a legal basis for the virtual property attribute of cryptocurrencies, ensuring their legal protection. From the perspective of criminal law, cryptocurrencies fall within the category of “property” as stipulated in Article 92 of the Criminal Law.
It can be transferred in the form of money as consideration and generate economic benefits. It has the characteristics of value, scarcity and disposable nature, meeting the constituent requirements of online virtual property and is also protected by law. Although cryptocurrencies are manifested in the form of digital or computer information system data, their essence is a digital form with the attributes of assets or property. Just as the value of a ledger lies in the recorded content rather than the paper itself, cryptocurrencies represent tradable and liquidated economic benefits. The law should regard them as digital assets with “property attributes”.
The underlying reasons why cryptocurrency trading is characterized as “cross-border foreign exchange conversion”
In recent years, many cases involving cryptocurrencies have been characterized as “disguised cross-border foreign exchange conversion”, and the relevant responsible persons have even been held criminally accountable. This is not because cryptocurrencies themselves are illegal, but because their transactions are highly consistent with traditional illegal foreign exchange activities in many aspects.
In terms of behavioral patterns, cryptocurrency traders complete value conversion through the path of “RMB → cryptocurrency → foreign currency” or the reverse, bypassing the official foreign exchange settlement and sales supervision and breaking through the foreign exchange purchase quota limit. Although this kind of transaction does not directly involve the banking system, the result is equivalent to the illegal exchange between the RMB and foreign currencies, which conforms to “other illegal business operations that seriously disrupt market order” as stipulated in Article 225 of the Criminal Law. In judicial practice, such transactions often exhibit characteristics such as peer-to-peer matching without a financial license, separation of fund receipts and payments from cash flow, and obvious service nature. Essentially, they are the use of technical means to evade the supervision of the state capital account.
The technical characteristics of cryptocurrencies also contribute to the concealment and high liquidity of their transactions, increasing the difficulty of regulation. The anonymity and coin mixing services brought by its decentralized mechanism have weakened the ability of regulatory agencies to identify the flow of funds and the participants. Cross-border transactions do not rely on traditional physical channels and bank accounts, enabling funds to flow at any node worldwide and breaking through regulatory tracking capabilities. Some investors also use cryptocurrencies to exceed their personal annual foreign exchange purchase limit of $50,000 for “implicit foreign exchange purchase”. In addition, some cryptocurrency trading platforms, when facilitating transactions, are prone to being identified as foreign exchange organizers due to providing various services beyond the scope of information matching, thus facing relatively high legal risks.
From a macro perspective, cryptocurrency trading has had a negative impact on national financial security and regulatory order. Its payment and pricing functions have, to a certain extent, replaced the role of the RMB in cross-border scenarios, threatening the status of cross-border settlement of the RMB. The formed “underground financial system” intersects with high-risk behaviors abroad, which is prone to trigger systemic risks. Features such as anonymous transactions provide convenience for illegal and criminal activities such as money laundering and terrorist financing, involving issues of financial counter-terrorism and national security.
A guide for Individual investors to avoid pitfalls in cryptocurrency trading
For individual investors, participating in cryptocurrency trading requires strict compliance with laws and regulations to avoid crossing the legal red line. First of all, one should avoid participating in OTC businesses such as “purchasing foreign exchange on behalf of others” and “exchange rate hedging”. These businesses use cryptocurrencies to bypass foreign exchange supervision and are considered disguised foreign exchange trading. They are highly likely to be suspected of the crime of “illegal business operations”.
Secondly, it is necessary to strictly follow the regulatory requirements for the annual foreign exchange purchase quota of individuals. The essence of trading cryptocurrencies is the value conversion between foreign currencies and RMB, which falls within the scope of foreign exchange purchase and settlement and is subject to the annual total amount management of 50,000 US dollars per person per year as stipulated in the “Detailed Rules for the Implementation of the Personal Foreign Exchange Administration Measures”.
Furthermore, when conducting transactions, one should choose a platform with a formal KYC process and avoid using anonymous recharge channels such as P2P over-the-counter trading and coin mixer services to prevent account freezing due to doubts about the legitimacy of the fund source and reduce the risk of being attacked by hackers at the same time.
Finally, if the transaction purpose is legitimate, investors should keep relevant supporting documents, such as admission notices and tuition payment notices for studying abroad, labor contracts and salary statements for working in China, etc., to prove that they are not engaged in the trading of cryptocurrencies.
Cryptocurrencies themselves do not have an “original sin”, but during the trading process, once cross-border, circumnavigation of foreign exchange, anonymity, and evading supervision are linked to illegal business operations, money laundering, foreign exchange control and other illegal matters, they will cross the legal red line. Whether they are individual investors or practitioners, before participating in the trading of crypto assets, it is essential to clearly understand the legal boundaries, enhance legal awareness, avoid unnecessary criminal risks, and ensure that their own actions are legal and compliant.
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