Written by: Xiao Za Legal Team
Recently, the Shanghai Second Intermediate People's Court, in collaboration with relevant units, held a seminar on cases involving virtual currency crimes, forming an important consensus on the legal characterization of behaviors related to virtual currencies. Among them, the conclusion that "individual holding and trading of coins is generally not recognized as illegal business operations" provides clear guidance for judicial practice and market behavior.
However, the other side of this consensus is a more explicit "red line." The judiciary does not completely relax regulations on behaviors related to virtual currencies but precisely targets illegal activities that, under the guise of innovation, actually disrupt financial management order. So, where exactly is the boundary between individual investors and the market? Which behaviors may seem ordinary but hide criminal risks? The Xiao Za team will delve into the key signals released by this seminar to clarify the "safe zone" and "high-voltage line," helping you navigate the exploration of the crypto world steadily and far.
I. Safe Zone: Why does "individual trading of coins" not constitute illegal business operations?
The law targets "business operations," not "investments."
First, we need to understand the core elements of the "illegal business operations" defined in Article 225 of China's Criminal Law, which requires the following points to be met simultaneously:
The behavior has "operational characteristics." That is, it provides services to unspecified members of the public continuously, openly, and on a large scale for profit;
Violates national regulations. The business behavior clearly violates mandatory provisions of national laws and administrative regulations;
Disrupts market order. The behavior reaches a serious level that disrupts the normal market management order of the state.
In the case mentioned at the seminar, the behavior pattern of Li was: using price differences between domestic and foreign platforms to buy and sell between personal accounts to earn the price difference.
Why does such a behavior pattern not constitute a crime? The court believes that Li's actions are "personal arbitrage." His trading counterparties are unspecified other retail investors on the platform; he did not actively solicit or promise to provide exchange or trading services to the public, nor did he establish channels or charge fixed fees as an intermediary. Essentially, this is a personal investment (speculation) behavior that lacks the public, continuous, and service-oriented characteristics of "business operations."
Implications for coin holders
The judiciary has drawn a clear line here: as an end user, buying, holding, and selling for the appreciation of your own assets (even if done frequently) falls within the scope of personal property disposal, with very low criminal risk. This provides a basic legal sense of security for personal asset management strategies.
II. High-Voltage Line: These two types of behavior are the focus of criminal prosecution
However, the aforementioned "safe zone" does not mean that one can freely engage in any activities related to virtual currencies. The seminar clearly delineated two high-voltage lines that are not to be touched, both essentially transforming virtual currencies into tools for illegal financial activities.
High-Voltage Line One: Providing "exchange assistance" for illegal activities
Knowing that others are engaged in illegal activities such as buying and selling foreign exchange, cross-border transfer of stolen funds, money laundering, etc., and still using the anonymity and cross-border characteristics of virtual currencies to provide exchange and transfer services, such behavior is no longer a neutral "technical operation," but rather provides crucial assistance to upstream criminal activities. Due to the joint criminal intent with upstream criminals, one may be prosecuted for illegal business operations, money laundering, or as an accomplice to upstream crimes.
For coin holders, when engaging in virtual currency transactions, it is essential to examine your counterparties and the sources and uses of funds. Avoid becoming a link in the criminal chain due to the temptation of slightly higher "transaction fees" or "exchange rates." Maintain the highest vigilance regarding transactions with unclear sources or those requiring specific transfer methods.
High-Voltage Line Two: Operating "virtual currency exchange" businesses—essentially "underground banks"
This is the strongest signal released by this seminar and the most easily misstepped area for coin holders and those on the fringes of the industry.
In judicial practice, the key behavior pattern constituting illegal business operations typically manifests as: individuals publicly or semi-publicly posting advertisements such as "USDT to RMB exchange" in various communities or social platforms, attracting customers with promises of "large amounts worry-free, instant arrival," often using exchange rates that deviate from normal market levels as inducements.
The essence of this trading model is to establish a stable two-way exchange channel, continuously providing exchange services between virtual currencies and legal tender to unspecified members of the public, profiting through fixed price differences or transaction fees. Such behavior often gradually forms an operational system similar to "market makers," even developing multi-level agency networks, with its scale and organizational characteristics fully embodying the essence of operational financial activities.
This behavior model is precisely the specific manifestation of "underground banks" in the digital financial sector that is currently a key target of judicial crackdown. "Underground banks" are not an independent crime in Chinese law but a collective term for illegal business operations involving payment and settlement services, illegal foreign exchange trading, etc. Its core harm lies in bypassing national financial regulation, disrupting foreign exchange management, and undermining anti-money laundering systems.
When virtual currencies are used as a medium to provide large-scale, continuous exchange services to unspecified members of the public, it essentially constitutes the illegal exercise of unique payment settlement and foreign exchange functions characteristic of financial institutions. This behavior not only fully meets the core characteristics of "operational activities"—that is, for profit, continuously providing services to the public—but also directly violates mandatory regulatory provisions regarding payment settlement services and foreign exchange management. Such illegal channels are prone to becoming covert conduits for capital flight, embezzlement, telecom fraud, and other gray and black industry funds crossing borders, severely disrupting the national financial foreign exchange management order and anti-money laundering regulatory system, thus constituting a key target for criminal prosecution.
In judicial determinations, such behavior will be directly recognized as illegal business operations. Moreover, due to the cross-border nature of virtual currencies, the amounts involved can easily reach the standard of "particularly serious circumstances," facing severe penalties of more than five years of fixed-term imprisonment and fines of more than one to five times the illegal gains or confiscation of property.
Warnings for coin holders and potential practitioners
Do not confuse "peer-to-peer over-the-counter trading" (OTC) with "operating exchange businesses." The former involves individuals conducting occasional transactions with specific few counterparties for asset disposal; the latter involves establishing channels and credibility to serve the unspecified public as a business. From a legal perspective, this is a qualitative red line from "civil behavior" to "criminal offense." Any intention to use this as a business model must be immediately dismissed.
III. Action Guide: How to navigate the crypto world safely?
In the world of crypto assets, the key to safe navigation lies in establishing clear legal boundary awareness and risk management habits.
For individual investors, the primary principle is to choose trading platforms with compliance foundations and market credibility for asset management and trading operations, and systematically maintain complete transaction records, communication screenshots, and fund flows. These materials are not only important evidence for addressing potential civil disputes but also key bases for explaining the nature of funds and cooperating with regulatory or judicial authorities when necessary.
Additionally, every market participant must fundamentally establish the awareness of "risk self-bear, responsibility self-assume." The current lenient attitude of judicial practice towards individuals holding and trading virtual currencies does not mean that the law or public authority will provide guarantees or remedies for property losses arising from this. Virtual currencies, as a type of highly volatile digital asset lacking sovereign credit endorsement, can experience drastic price fluctuations in a short time due to market sentiment, regulatory policies, technological risks, and even international situations, and investors must bear the risk of changes in market value themselves.
At the same time, the decentralized nature of finance also determines that once encountering technical failures of trading platforms, mismanagement, or even malicious exit, or due to personal operational errors, private key leaks, or loss of mnemonic phrases leading to assets being irretrievable, these losses are legally regarded as business risks and custody responsibilities that investors should foresee and bear. Therefore, participating in this market requires not only professional judgment but also a clear self-awareness of risk—every transaction and every custody action ultimately rests solely on you.
Finally, maintaining prudent management of the flow of funds is crucial. Ensure that the paths of inflow and outflow are clear, legal, and traceable, actively avoiding any association with funds of unclear origin or those involved in suspicious activities, thereby building a basic compliance defense line for your assets in a complex market environment.
In Conclusion
The future of the crypto world belongs to those explorers who find a balance between innovation and compliance. The gradual clarity of judicial practice is an important milestone in the maturity and regulation of this industry. Only by actively incorporating legal risks into the decision-making framework and using rationality and discipline to navigate volatility and uncertainty can we truly safeguard our wealth autonomy and sense of security in the new wave of digital assets.
The path has extended beneath our feet, and the direction is illuminated by the judiciary. May every coin holder navigate confidently and safely towards their own value shore within the legal channels defined.
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