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China: pricing disputed Bitcoin trades – when are they enforceable?

March 18, 2021

Here we consider in what circumstances valuations in relation to Bitcoin will be upheld by Chinese courts if the parties to a transaction are in dispute about the sum payable or the quantification of money due.  Recent judgments in China have provided some clarity as to when that might be the case, against a regulatory background in China increasingly adverse to Bitcoin.

From a legislative perspective, Chinese authorities (led by the People’s Bank of China) have prohibited the use of Bitcoin as a currency in the market since 2014. From 2017, Chinese regulators required that all Bitcoin-related financing activities (such as a public offer of Bitcoin, or the operation of a fiat conversion business) should cease.  Likewise, in recent years, major cities in China have launched large-scale rectification measures against platforms operating unrecognised cryptocurrencies such as Bitcoin. These crackdowns have led to an increasing number of disputes over Bitcoins.

It is within such an environment that the Shenzhen Intermediate People’s Court of Guangdong Province (the Shenzhen Court), after consultation with the Supreme People’s Court of China, revoked an arbitral award made by the Shenzhen Arbitration Commission (SZAC) in 2018 (the Shenzhen Award).

The case is significant in helping to show what may, and may not, be permitted as regards enforcing claims pegged to Bitcoin-related valuations.

What did the Shenzhen Award purport to establish?

The Shenzhen Award had purported to establish the following principles in connection with the characterisation of, and contractual rights in relation to, the sale and purchase of Bitcoin:

  • Although Bitcoin is not recognised to be a lawful currency in China, it is still deemed to be a type of “virtual commodity” in China.
  • Notwithstanding crackdowns against platforms enabling Bitcoin transactions in China since 2017, disputed Bitcoins (being a form of “virtual commodity”) are still capable of being returned through Internet technology.  As a result, the defendant’s failure in this case to return the disputed Bitcoins to the plaintiff had constituted a breach of contract.
  • The amount to be returned by the defendant is to be calculated by reference to the public information available on “” on the date the plaintiff and the defendant had agreed for the performance of the relevant obligations (as set out in the underlying contracts) (the Conversion Methodology).
  • As Bitcoin is not a lawful currency in China, it is not able to accrue interest for late / non-payment, and any claim for payment of interest was therefore rejected by SZAC.

Why was the Shenzhen Award overturned?

The Shenzhen Court reviewed and overturned the Shenzhen Award.  It rejected the Conversion Methodology.  Such a methodology, it considered, violated the public interest for the following reasons:

  • The Shenzhen Court took the view that, as Bitcoin is not a lawful currency in China, activities relating to the conversion, exchange, trading, circulation and speculation in Bitcoins are deemed illegal financial activities, which may affect financial stability.
  • As the Conversion Methodology priced the disputed Bitcoin by reference to the US dollar exchange rate (which is a lawful currency) first, and then converted the US dollar amount into Renminbi (which is another lawful currency), such acts supported the conversion and trading between Bitcoin and lawful currencies, contrary to the public interest.

Are there Chinese cases of valuations in relation to Bitcoin being upheld?

Prior to the decision in the Shenzhen Court case, the Shanghai First Intermediate Court (the Shanghai Court) had passed judgment in a similar Bitcoin case (the Shanghai Case). The Supreme People’s Court of China had awarded the Shanghai Case status as an “Outstanding Case of the National Court System in 2020”, meaning that it would usually have profound impact on future Bitcoin cases in disputes.

In the Shanghai Case:

  • The compensation payable in relation to the disputed Bitcoin was commercially agreed between the plaintiff and the defendant directly.
  • Because the pricing was not linked to any lawful currencies or by reference to any public pricing platforms, the Shanghai Court upheld the agreed level of compensation.

Do the cases establish any generally applicable principles?

China is not a case law country but cases with effective judgments have played a vital role in recent judicial practice in China. Although judicial practice in relation to Bitcoin still varies across local cities in China, the Shenzhen Case and the earlier Shanghai Case (which can be taken to have been endorsed by the Supreme People’s Court of China to some extent) would appear to establish two important principles:

  • The recognition that Bitcoin can enjoy a measure of protection by being considered to be a type of commodity.
  • The valuation of Bitcoin subject to a dispute can be contractually agreed between concerned parties as long as the valuation is not linked to any lawful currencies. 

What does this mean in practice?

When dealing with Bitcoin activities involving Chinese entities or individuals on a cross-border basis, a  party could consider including a term in commercial agreements:

  • Allowing foreign counterparties to negotiate and agree a specific and fixed price of Bitcoins with Chinese entities or individuals; or 
  • Requiring the defaulting party to return the disputed Bitcoins to the non-defaulting party directly, without mentioning the pricing of the disputed Bitcoins. 

As at the date of publication, based on the two cases described above, such an approach may increase the chances of recovering disputed Bitcoins in China, particularly given the overall challenging regulatory environment for Bitcoin in the region.

Of course, the legal position in relation to any such transaction is inherently fact-dependent, and the law in this area in China remains in flux, so transacting parties should always verify the then-current legal position with local counsel in China for their particular transaction before entering into it.