A Virtual Currency Seminar Worth Noting in China

In China, virtual currency has always been a sensitive topic, with limited public discussion and in-depth research for a long time. Despite the increasing use and trading of digital assets globally, the regulatory and legal framework in this field has remained unclear in China, and many issues are yet to be resolved.

On the eve of the Spring Festival, January 19, 2025, a highly anticipated seminar was held in Beijing. Representatives from various practical departments, including the Standing Committee of the National People’s Congress, the Supreme People’s Court, the Supreme People’s Procuratorate, and the Ministry of Public Security, gathered with dozens of legal scholars, lawyers, and business professionals to discuss the topic of “Disposal of Virtual Currency in Legal Cases.” While the scale of the meeting was not large, its significance was exceptional.

Why?

Because this was not just an academic or policy discussion, but it could very well be a cross-border “breakthrough” between the judiciary and technology, regulations and markets. The event was reported on by Fazhi Daily, a comprehensive legal publication under the Central Political and Legal Affairs Commission.

This seminar not only provided an invaluable opportunity for improving China’s regulatory framework, legal recognition, and disposal mechanisms for virtual currencies, but also laid the foundation for the compliant development of the entire industry. The holding of this seminar marks the beginning of a new chapter in the process of compliance in China’s virtual currency sector.

Of course, your biggest question might be: Why is there a special seminar to discuss the “disposal” of virtual currency?

The reasoning behind this is not complicated: for the average person, the principle is “everything not prohibited by law is allowed,” meaning that as long as the law does not explicitly prohibit it, individuals are free to explore and try things out legally.

In China, no laws or regulations have declared that citizens cannot trade or hold virtual currency. Therefore, trading virtual currency with legal funds is not illegal in itself; it’s just that your actions may not currently receive legal protection. I explained this clearly in my article “Is Bitcoin Really Legal in China?” a few years ago.

However, for administrative and judicial agencies, the principle is “if not authorized by law, it is prohibited.” Without legal authorization, handling cases and enforcement face significant gray areas and operational risks.

Since 2017, “prohibition-based regulation” has been repeatedly emphasized in official documents. Many cryptocurrency exchanges have exited the market, leading people to believe that the craze would gradually subside. However, crimes related to virtual currency have not ended: fraud, money laundering, illegal fundraising, pyramid schemes… various “black market practices in the crypto space” have only intensified. The question of how to dispose of cryptocurrency involved in legal cases — this “digital asset” that is invisible, intangible, and can be concealed on cross-border blockchains — has become one of the most troublesome challenges in judicial practice.

According to a relevant official from the Beijing Public Security Bureau’s Legal Affairs Team on case property management, in recent years, the proportion of cryptocurrency-related crimes in the total network crime cases has continued to rise, with some regions seeing growth rates exceeding 50%. During investigations, public security authorities report facing “four difficulties” — classification difficulties, evidence gathering difficulties, custody difficulties, and disposal difficulties.

Among them, disposal is the most troublesome. On one hand, if judicial authorities directly confiscate virtual currencies and declare them illegal, it may lack a direct legal basis; on the other hand, if a third party is entrusted to liquidate them, it may violate cross-border regulations or trigger money laundering risks. Even more problematic is the extreme volatility in cryptocurrency prices. From filing a case to its conclusion, it can take months, if not longer, and the value can fluctuate significantly, making it difficult to balance the interests of the victims with those of the state.

In reality, the judicial authorities face even more embarrassment than one might imagine. Consider these two cases:

Case 1: In a pyramid scheme fraud case, the criminals exchanged 100 million RMB of stolen funds into Bitcoin and transferred them to an overseas cold wallet. Although the police successfully cracked the case, they were unable to liquidate the Bitcoin due to domestic exchanges being prohibited from assisting with liquidation. Even with the private key, they could only “freeze” the funds without being able to seize them or return them to the victims.

Case 2: In a domestic money laundering operation, the criminals used multiple “shell accounts” on trading platforms and even overseas exchanges to make tracing extremely difficult. Once the case was broken, there was no unified disposal channel. Forced sale of the coins to a “third-party company” could potentially lead to “secondary money laundering” or even illegal cross-border transactions.

For this reason, law enforcement agencies urgently need clear disposal rules and technical solutions to combat crime and recover losses within a legal and compliant framework. The seminar focusing on “Disposal of Virtual Currency” might be the first step toward resolving these challenges.

At the seminar, experts from judicial departments and the legal community generally agreed that relying solely on “prohibition-based regulation” is insufficient to completely solve the crimes related to virtual currency, nor does it provide sufficient, actionable means for law enforcement. To truly break through, three paths need to be explored: legal classification, technical support, and international cooperation.

2.1 Legal Classification: From “Gray Area” to “Property Status”

Many scholars advocate for establishing a basic consensus on the “property” status of virtual currencies within the existing legal framework.

This does not mean recognizing virtual currency as a “legal payment method” or encouraging speculation, but rather acknowledging its value in economic transactions from a judicial perspective, which would facilitate the confiscation or return of criminal proceeds. Additionally, legislation or judicial interpretations should swiftly improve procedures for the seizure, freezing, and detention of “virtual currencies involved in criminal cases.”

Only by addressing the fundamental issue of whether virtual currency can be recognized as property, can law enforcement agencies like the police, prosecutors, and courts lawfully take compulsory measures and legally liquidate or return the proceeds after criminal proceedings conclude.

2.2 Long-Term Mechanism: Establishing a “Custodial Disposal” System

The difficulty in disposing of virtual currencies largely stems from their cross-border nature, anonymity, long transaction chains, and complex fund flows. Moreover, even when authorities have the private key of the virtual currency in question, how to liquidate it, who will do so, and whether the transaction process is compliant remain challenging questions.

Some experts suggest that state-owned banks or officially recognized third-party institutions take on the custodial and liquidation roles. This would prevent secondary money laundering or cross-border transfers and reduce additional losses caused by price volatility through professional risk control.

Of course, this model would require sufficient legal authorization and supporting rules at the regulatory level, as relying on individual case operations alone will not establish a long-term mechanism.

2.3 International Cooperation: Building a “Green Channel” for Cross-Border Asset Recovery

It is worth noting that many criminal organizations use overseas exchanges as “stepping stones,” making it difficult for investigative authorities to obtain key data. For such cross-border crimes, domestic law enforcement agencies are often at a disadvantage.

For this reason, several scholars have proposed strengthening judicial mutual assistance with regions like the EU and Singapore, where virtual currency regulation is relatively mature, and developing a fast-track system for “cross-border freezing and disposal of involved assets.” If data exchange and law enforcement cooperation channels can be opened up internationally, it will significantly improve the efficiency of asset recovery and provide a compliance boundary for the “cross-border circulation of virtual currencies.”

2.4 Conclusion

In summary, this seminar sent a clear message: to make virtual currencies truly “invisible,” it takes more than just a ban and it cannot be accomplished overnight. Only through legal classification, long-term mechanisms, and international collaboration can the disposal of virtual currencies be transformed from a “hot potato” into a “systematic solution.”

This could be a crucial step in China’s transition from “one-size-fits-all control” to “classified management and refined disposal.” Many attendees believe that as virtual property legislation continues to improve, virtual currencies may eventually be incorporated into a more complete legal system, serving not only to combat crime but also providing clear boundaries for the development of the digital economy. After all, only when participants, platforms, and regulators operate within the same legal and technological framework can the risks of virtual currencies be gradually mitigated, and their potential value can be explored and released in a more reasonable manner.

At the seminar, many participants emphasized that “current policies should be respected, and virtual currency should not be traded under the guise of disposal.” In other words, recognizing virtual currency as “property” does not mean it becomes a “legal payment method” in China. Instead, it is simply a legal confirmation from a criminal justice perspective that it can be subject to enforcement or confiscation.

However, history often “turns at the details.” As more and more cases involve cryptocurrencies, if handling procedures become increasingly standardized, the value status of virtual currency will also be more clearly recognized in judicial practice. At that point, new explorations in compliance could emerge around personal investment, enterprise blockchain applications, and the digital economy’s global expansion.

For individual investors, it is still unwise to “misjudge policy trends” and rush into the market, but they can keep an eye on developments in the judicial and financial sectors related to technology, custody, and international expansion.

For service providers, areas such as blockchain security audits, evidence tracking, third-party custody, and asset management might see a new market opportunity. As long as they align with regulatory approaches and offer compliant technology and services, they stand to gain significant market prospects.

As one expert remarked after the seminar, “As long as crime and risk are controlled, a healthy and compliant virtual currency industry will emerge on its own.” The only question is how long it will take.

Perhaps, this seemingly “technical” seminar could lay a ‘rule of law’ cornerstone for China’s future approach to cryptocurrency, a global issue.

From “prohibition-based regulation” to today’s judicial seminar, virtual currency in China has always been a polarizing topic filled with controversy. However, looking at it from another angle, China has never stopped exploring new technologies and the digital economy. The promotion of the digital yuan and the development of blockchain infrastructure both indicate that regulatory authorities are not simply blocking innovation, but are searching for the right way to leverage new technologies for their benefit.

Thus, while this seminar may not immediately shift the overall tone regarding cryptocurrency in China, it could play an important role in advancing judicial disposal systems and improving virtual property legislation. Once the judicial “disposal” mechanisms begin to evolve into operational, low-risk solutions, they could set an example for higher-level legislative and regulatory frameworks in the future.

Sometimes, major shifts begin with low-key yet solid academic and practical discussions. Just like the faint light that filters through a crack, it may seem weak, but it has the potential to bring hope to the darkness — this, perhaps, is where the breakthrough in China’s cryptocurrency governance could emerge.

Airdrop Reference is an innovative blockchain education and promotion platform aimed at spreading basic blockchain knowledge and helping ordinary users understand and participate in the development of blockchain technology. The mission of this project is to lower the entry barriers to blockchain, promote high-quality blockchain projects, and allow more people to enjoy the benefits of the Web3.0 era.

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