Last week, Bitcoin (BTC) was legally recognized by a Chinese court, whereby it was concluded that the cryptocurrencies should now be considered as digital property. The decision that the Hangzhou Internet Court made in a ruling was met with enthusiasm from some community members, who assumed that Bitcoin is now legal in the People’s Republic of China (PRC) — famously one of the harshest jurisdictions for digital currencies in the world — and that the local government might soon ease its pressure on Bitcoin.
On July 18, the Hangzhou Internet Court, situated in the same city that houses the Blockchain Industry Park, was overseeing a dispute between a now-defunct exchange and one of its users, identified as Wu.
As local media reports, in 2013, Wu purchased 2.675 BTC for 20,000 RMB (around $2,900) from a platform called FXBTC via a store on online marketplace Taobao and stored them in a digital wallet on its website. According to the plaintiff, in May 2017, he tried to access his funds but discovered that the FXBTC’s website shut down back in 2014. Wu was unable to contact the platform’s administration and hence couldn’t retrieve his Bitcoin holdings.
Wu then filed a lawsuit against FXBTC, who allegedly did not give any notice prior to closing the platform. He also sued Taobao for allowing “banned items like cryptocurrency” to be listed on its market — even though Bitcoin trading in China was banned later in 2017. Wu demanded FXBTC and Taobao to pay around 76,300 RMB ($11,000) in compensation.
Although the bench rejected the plaintiff’s claims against FXBTC and Taobao due to a lack of evidence, it acknowledged Bitcoin as a commodity because it carries value, is scarce and can be used as a means of transferring value. However, digital currencies such as Bitcoin “do not have the legality of an official currency,” the Hangzhou Internet Court specified.
The arbitrator found that the contractual obligation under dispute did not fall under the relevant provisions as outlined in the 2017 prohibition. He declared:
“There is no law or regulation that explicitly prohibits parties from holding Bitcoin or private transactions in Bitcoin, but rather reminds the public about the investment risks. The contract in this case stipulates the obligation to return the Bitcoin between two natural persons, and does not belong to the ICO financing activities stipulated in the Announcement on Preventing the Risk of Subsidy Issuance Financing [i.e., the 2017 ban].”
Similarly, the United States Internal Revenue Service (IRS) also views cryptocurrencies as property, meaning those who sell their cryptocurrencies for a profit are subject to a capital gains tax