In recent years, as digital assets like Bitcoin gain wider recognition, more investors are exploring advanced strategies such as quantitative trading to optimize returns. Among these, Bitcoin quantitative trading—automated, algorithm-driven investment strategies applied to cryptocurrency markets—has become increasingly popular. But a critical question remains for investors: Are such financial activities legally protected in China? And what do courts actually think when disputes arise?
This article dives into real legal cases from Beijing courts to clarify the legal status of Bitcoin quantitative trading, digital asset investment, and crypto-based委托理财 (entrusted asset management). We’ll explore whether these contracts are enforceable, how courts treat Bitcoin as property, and what precautions investors should take.
Real Case: Beijing Fangshan Court Ruling on Bitcoin Entrustment
Court: Beijing Fangshan District People's Court
Case No.: (2019) Jing 0111 Min Chu No. 21457
Cause of Action: Civil Entrusted Financial Management Contract Dispute
Judgment Date: August 24, 2020
Case Summary
Mr. Yan entrusted 5 Bitcoins (BTC) to a data services company via its app “A Software” for quantitative trading. Under the agreement, the company would manage the BTC using spot and derivatives trading strategies over a one-year period. The assets were transferred on January 15, 2019, with redemption scheduled for July 19, 2019.
However, around June 10, 2019, the company went silent—its app stopped updating, and customer service became unreachable. Mr. Yan filed a lawsuit demanding:
- Return of 5 BTC (valued at approximately RMB 400,000 at the time).
- Payment of litigation costs by the defendant.
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Key Terms of the Entrusted Management Agreement
The contract outlined clear responsibilities and mechanisms:
- Entrusted Asset: 5 BTC deposited into a designated exchange account controlled by the service provider.
- Management Authority: The company could use spot trading, futures contracts, and swaps.
- Term: One year from transfer date.
- Confidentiality: Both parties agreed to protect each other’s information.
- Performance Reporting: The investor had the right to monitor performance.
Profit Sharing:
- 20% performance fee taken by the manager based on annualized returns.
- 2% front-loaded management fee.
- 1% redemption fee unless withdrawn on the settlement date.
Risk Control:
- Losses under 15% of initial capital: no liability for the manager.
- Losses reaching or exceeding 15%: manager must halt trading; investor may terminate immediately.
- Redemption Process: Quarterly redemption windows with a 14-day advance notice requirement.
Default Provisions:
- Misuse of funds: Full compensation plus damages.
- Late payment of fees: Daily penalty of 0.3% on overdue amounts.
Despite these detailed terms, the service provider vanished before the term ended.
Court’s Legal Analysis and Ruling
The court upheld the validity of the contract and delivered a landmark decision:
“Although Bitcoin does not have legal tender status in China, it is recognized as a specific type of virtual commodity. There is no current law or administrative regulation that prohibits individuals from holding Bitcoin. Therefore, Bitcoin possesses attributes of virtual property and should be protected under civil law.”
This conclusion draws from two key regulatory documents:
- 2013 PBOC Notice on Bitcoin Risks: Clarified that Bitcoin is not legal tender but acknowledged it as a virtual commodity.
- 2017 Joint Announcement on ICO Risks: Reinforced restrictions on token financing but did not ban ownership or peer-to-peer trading of cryptocurrencies.
Thus, the court ruled:
✅ The entrusted management agreement was valid and legally binding.
✅ The defendant failed to fulfill its obligations and must return the full principal—5 BTC.
✅ Litigation and publication costs borne by the defaulting party.
The absence of the defendant did not prevent judgment—the court proceeded in absentia.
Broader Legal Implications: What Beijing Courts Are Saying
This case is not isolated. Several similar judgments from the same court—including (2019) Jing 0111 Min Chu No. 19452 and No. 21966—reflect a consistent judicial trend.
1. Case Classification: Civil Entrusted Financial Management Disputes
These disputes fall under "civil entrusted financial management contract disputes", a subset of general contract law. This classification matters because:
- It distinguishes non-institutional crypto investing from regulated financial products.
- It applies standard civil contract principles: mutual consent, clear terms, and enforcement of obligations.
Unlike bank-managed wealth products, crypto quantitative trading falls under non-financial institution entrusted management, meaning investors bear higher due diligence responsibility.
2. Validity of Crypto-Based Contracts
As long as the agreement:
- Reflects genuine intent,
- Does not involve illegal fundraising or money laundering,
- Complies with general civil law,
…it will likely be deemed valid—even if the underlying asset is Bitcoin.
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3. Bitcoin’s Legal Status: Virtual Property with Civil Rights Protection
Courts consistently affirm:
“Bitcoin holders exercise rights of possession, use, income, and disposal through blockchain-recorded data. These actions do not violate Chinese law.”
While trading or issuing tokens may be restricted in certain contexts (e.g., ICOs), private ownership and contractual use of Bitcoin are not illegal.
This means:
- You can own Bitcoin.
- You can enter contracts involving Bitcoin.
- If someone breaches such a contract, you can sue—and potentially recover your digital assets.
4. Investor Protection: Key Contractual Safeguards
Based on judicial insights, here’s how to protect yourself in crypto quantitative trading:
✅ Use Written Agreements
Oral promises aren’t enough. A formal contract should cover:
- Asset transfer method
- Management scope (spot/futures/leverage)
- Term and reporting frequency
- Exit procedures
✅ Define Stop-Loss Mechanisms
Set clear thresholds—e.g., “If losses exceed 15%, all trading stops.” This protects both parties and provides evidence in court.
✅ Structure Profit Sharing Clearly
Specify:
- How returns are calculated
- When fees are deducted
- Whether performance fees apply only to profits
✅ Establish Redemption Rules
Include:
- Notice periods
- Processing timelines
- Conditions for early withdrawal
✅ Detail违约责任 (Breach Liability)
Define consequences for:
- Fund misappropriation
- Unauthorized trading
- Communication failure
- Data breaches
Frequently Asked Questions (FAQ)
Q: Is Bitcoin legal to own in China?
A: Yes. While it cannot be used as currency, personal ownership of Bitcoin as a virtual commodity is not prohibited by law.
Q: Can I sue someone who loses or steals my crypto?
A: Yes—if there’s a valid contract. Courts recognize Bitcoin as an object of civil rights and may order restitution.
Q: Are all crypto investment contracts enforceable?
A: Not necessarily. Contracts involving illegal activities (e.g., fraud, pyramid schemes) are void. But legitimate委托理财 agreements are generally upheld.
Q: What if the company operates offshore?
A: Jurisdiction becomes complex. Chinese courts may lack authority unless the entity has domestic presence or assets.
Q: Should I trust platforms offering high-yield BTC quant strategies?
A: Exercise caution. High returns often mean high risk—or scams. Always verify licenses, audit trails, and legal terms.
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Final Thoughts
The Beijing court rulings signal a mature legal understanding: digital assets like Bitcoin are not legally invisible. When used within civil contracts—especially well-drafted委托理财 agreements—they enjoy protection under Chinese civil law.
However, this protection isn’t automatic. Investors must:
- Document everything,
- Understand risks,
- Choose partners carefully,
- And act quickly if things go wrong.
Quantitative trading offers powerful opportunities—but only when grounded in legality, transparency, and smart risk management.
As regulation evolves, staying informed is your best defense—and your greatest advantage.