Chinese Official Media Signals Major Alert! Who Bears the Losses from Investing in USDT and Cryptocurrencies?

In early 2021, ten Chinese authorities including the People's Bank of China, the Supreme People's Court, and the Supreme People's Procuratorate issued the "Notice on Further Preventing and Handling the Risks of Speculation in Cryptocurrency Transactions." Earlier in April, Chinese state media wrote an article based on judicial decisions emphasizing that cryptocurrency transactions are legally invalid and that any losses incurred must be shouldered by the individuals themselves.

Many investors in the Chinese market are puzzled over who bears the losses when funds cannot be retrieved due to cryptocurrency platforms being frozen after they authorized others to speculate in cryptocurrencies. What happens when the principals appeal to the court demanding repayment of principal and interest from their agents?

According to a report by the People's Daily Online, the Intermediate People's Court of Xiangyang City in Hubei Province recently adjudicated a dispute caused by cryptocurrency speculation. The court ruled that the plaintiff, Mr. Wang Mubo, should bear the financial losses himself.

In June 2022, introduced by his friend Mr. Hu, Mr. Wang met Mr. Huang Binbin, who was skilled in speculating on USDT (Tether) via a digital platform. After understanding the details of speculating in USDT, Mr. Wang paid Mr. Huang 27,035 yuan using a POS machine on June 12, 2022, for investing and speculating in USDT, and registered four cryptocurrency trading accounts through Mr. Huang on the digital platform.

Between June 18 and July 10, 2022, Mr. Huang transferred the profits from Mr. Wang's four cryptocurrency accounts to Mr. Hu, who then paid Mr. Wang through WeChat a total of 2,794.55 yuan.

On July 18, 2022, the digital platform was frozen due to significant transaction volumes and suspected criminal activities, leaving investors unable to trade, and Mr. Wang's investment was lost. After failing to recover the investment from Mr. Huang, Mr. Wang took the case to court, demanding that Mr. Huang and Mr. Hu jointly repay his investment of 27,035 yuan plus interest.

During the trial, Mr. Huang argued that there was no actual or legal fiduciary relationship between him and Mr. Wang. Mr. Wang, being fully capable of civil conduct, should have been aware of the risks associated with investing in cryptocurrencies. The plaintiff's investment in the forex market, specifically in Tether, which is not a valid circulating currency, led to losses that he should bear himself. Mr. Hu argued that the 20,000-plus yuan invested by Mr. Wang was directly paid through Mr. Huang's POS machine, and he should not be responsible for repaying the investment and interest.

After reviewing the case, the first-instance court found that Mr. Wang, after learning about the USDT speculation through the digital platform and paying Mr. Huang for the investment, could check his accounts and knew the earnings, and obtained returns through Mr. Huang and Mr. Hu. His evidence was insufficient to prove a financial management contract relationship with Mr. Huang and Mr. Hu, so the court dismissed his claims.

As cryptocurrencies do not have the legal status or the compulsory nature of legal tender, they should not circulate as currency in the market. The court concluded that the losses incurred from the USDT transactions should be borne by Mr. Wang.

Dissatisfied with the verdict, Mr. Wang appealed to the Xiangyang Intermediate Court. The appellate court upheld the original judgment, finding that there was no clear agreement between the parties regarding risk assumption and profit sharing.

The judge reminded that multiple departments, including the People's Bank of China and the Ministry of Public Security, had issued a notice in September 2021, stating that cryptocurrencies like Bitcoin, Ethereum, and Tether do not have the legal status of legal tender.

The notice emphasized that such currencies, not being issued by monetary authorities and existing digitally, do not possess the necessary legal tender qualities and should not be used in market circulation. Legal risks are inherent in participating in cryptocurrency investments and transactions, and losses incurred from such investments, deemed contrary to public order and good morals, should be borne by the investors themselves.