Introduction
Yesterday, Lawyer Liu (web3_lawyer) just wrote an article titled 《Is the crypto "deep-sea fishing" about to end?》, discussing the legal risks of crypto industry practitioners in China. Early this morning, I saw a piece of news: Hangzhou, an area with relatively active web3 entrepreneurship, has had local police begin investigating crypto practitioners in the jurisdiction since June 8.
I. What are the police investigating
According to a blog post by a network platform blogger (@mirrorzk), crypto practitioners in Hangzhou were verbally notified by police to bring their laptops to the police station to cooperate with data collection, information recovery, and statement taking. The investigated personnel stated that the police used collection equipment to recover chat records from uninstalled Telegram and Slack software.
According to the blogger's analysis, the current key focus groups in Hangzhou include:
(I) Those who have participated in token issuance/project financing;
(II) Companies or individuals with overseas fundraising, capital inflow, cross-border transfers, and USDT over-the-counter activity records;
(III) (Web3) Community operators or those with new user acquisition backgrounds (such as KOLs, DAO management, node operations, etc.)
The blogger analyzed that Hangzhou's investigation may be a prelude to nationwide screening, due to Hangzhou Public Security's leading blockchain technology, the concentration of web3 talent second only to Shenzhen (in Lawyer Liu's personal view), and the active cross-border virtual currency transactions in Hangzhou and even the entire Zhejiang region.
II. Lawyer's Judgment on Why Crypto Practitioners Might Be Investigated
From a web3 lawyer's perspective, I would conservatively say that there is currently no particularly sufficient evidence to prove that mainland China will further "crack down" on the crypto after the "9.24 notice". However, if the Hangzhou incident is indeed true, the following factors need to be considered:
(I) A major crypto team in Hangzhou may be involved in a criminal case, leading to a comprehensive investigation of crypto practitioners in the region to primarily confirm the possibility of criminal involvement;
(II) Based on clues from financial regulatory departments such as the State Administration of Foreign Exchange and the People's Bank, the police's investigation of local crypto practitioners is mainly based on future financial regulation of cryptocurrencies;
(III) Considering tax departments' perspective, as cryptocurrencies are natural tax avoidance tools. If our country wants to levy taxes on cryptocurrency holders in the future, it would need to start from pilot cities to "cross the river by feeling the stones" and establish grounds for future crypto asset taxation.
It's particularly important to note that in our country, citizens' private property cannot be searched or seized without legal procedures. While public security organs (police) do have legal basis for verbally summoning citizens to assist in investigations, further data recovery from citizens' laptops through technical means requires following legal procedures (such as issuing a "Seizure Decision"), and cannot be done through verbal requests alone.
III. Is the Crypto Winter Coming Again in Mainland?
Since the joint notice by ten national departments on September 15, 2021, "Further Prevention and Disposal of Virtual Currency Trading Speculation Risks" (hereinafter referred to as the "9.24 notice"), our country has almost completely prohibited virtual currency-related business activities.
The state considers virtual currency exchange with legal tender, exchange between virtual currencies, acting as a central counterparty in buying and selling virtual currencies, providing information intermediary and pricing for virtual currency transactions, token issuance financing, and virtual currency derivative transactions as illegal financial activities. They are strictly prohibited and banned. Those constituting crimes will be held criminally responsible.
Meanwhile, mainland China does not allow any domestic or foreign virtual currency exchanges to operate, and those providing services for overseas virtual currency exchanges (marketing, payment settlement, technical support, etc.) will be held legally responsible. Additionally, financial institutions and non-bank payment institutions are required not to provide services for virtual currency transactions (using WeChat, Alipay, or bank cards to buy and sell virtual currencies actually violates the "9.24 notice"), and mainland Chinese enterprises cannot contain words like "virtual currency", "virtual assets", "cryptocurrency", or "crypto assets". Combined with the "9.3 notice" banning mining in 2021, these regulations essentially completely isolate virtual currency-related businesses in mainland China.
However, the "9.24 notice" also stipulates that "any legal person, non-legal organization, and natural person investing in virtual currencies and related derivatives, violating public order and good customs, the related civil legal acts are invalid, and losses incurred shall be borne by themselves"; this clause has been interpreted by many legal practitioners as: China does not prohibit virtual currency investment, but also does not protect it. Lawyer Liu has held this view in previous articles, because what is not explicitly forbidden is allowed, and as long as our country has not clearly prohibited citizens from investing in virtual currencies, no one can say buying and selling virtual currencies in China is illegal.
But in practice, legal theories are beautiful. We have encountered too many cases where people were convicted and sentenced simply for receiving funds from buying and selling virtual currencies (with subjective criminal intent clearly provable). Therefore, to completely avoid legal risks in the crypto world, I now recommend that mainland citizens do not speculate or trade virtual currencies.
Returning to the Hangzhou incident, it indeed cannot be ruled out that this is a prelude to a nationwide "crypto prohibition" activity. But it's also possible that it's simply due to some legal events in the Hangzhou crypto circle and may not expand nationwide. At least currently, it cannot be confirmed that the mainland crypto industry is encountering another Crypto Winter.
IV. Final Words
The Monetary Authority of Singapore (MAS) released policy guidelines on May 30, stipulating the strongest web3 regulation in Singapore's history to be implemented on June 30; mainland China continues to crack down on crypto-related businesses based on the "9.24 notice"; Hong Kong claims to be open to web3 but is actually ambivalent; the US crypto policy is not particularly friendly either...
The future development of cryptocurrencies, characterized by decentralization and anonymity, is unpredictable. Initially, Bitcoin's rise was not by actively approaching centralized institutions or pledging loyalty, but by continuously being accepted by ordinary people who do or do not understand blockchain technology, ultimately forcing more centralized institutions (such as multinational companies and government agencies) to accept it. Therefore, true crypto believers actually need not care what centralized institutions do to cryptocurrencies, but should continuously strive to make cryptocurrencies truly embody their value.
