Crypto lending invalidated by Chinese court in second landmark ruling

A second Chinese court has ruled that crypto lending is an activity outside the protection of the country’s legal system.

According to an October 10 press release by the Nanchang People’s Court, in April 2021, an individual known as Mr. Ming lent a total of 80,000 Tether (USDT) to an individual known as Mr. Gang for the purpose of stablecoin trading. The loan was to be repaid within six months. However, Mr. Gang defaulted on the loan, leading Mr. Ming to sue his counterparty in the Nanchang’s People Court. 

In its landmark decision this week, the Nanchang People’s Court stated Mr. Ming was required to prove that Tether is a legally issued fiat currency to bring a necessary cause of action for judicial relief, citing a series of legislation composing China’s Crypto Ban. Since Mr. Ming was unable to do so, the Nanchang People’s Court ruled that the lawsuit did not fall in the appropriate scope of civil litigation. Mr. Ming subsequently appealed the decision, which was also dismissed. The presiding judge wrote:

“There are legal risks involved in participating in virtual currency investment and trading activities. If any legal person, unincorporated organization, or natural person invests in virtual currencies and related derivatives that violate public order and good customs, the relevant civil legal actions will be invalid, and the resulting losses shall be borne by them.”

Cryptocurrencies have been banned in China since late 2021, citing environmental concerns and a lack of surveillance. In another ruling from August, the Changzhou Zhonglu People’s Court invalidated a $10 million Bitcoin lending agreement, ruling that the lender had no means of judicial relief due to the borrower’s default as crypto is a prohibited activity within the country. 

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