Written by: Liu Zhengxiao
Introduction
Yesterday, Liu, the lawyer, just wrote an article 《Is the crypto "Far Sea Fishing" Coming to an End?》, discussing the legal risks of crypto practitioners in China, and early this morning, I saw a piece of news: Hangzhou, also a region with relatively hot web3 startup activities, has had local police begin investigating crypto practitioners in the area since June 8.
I. What Are the Police Investigating
According to an article by a network platform blogger (@mirrorzk), crypto practitioners in Hangzhou were verbally notified by the police to bring their laptops to the police station to cooperate with data collection, information recovery, and taking statements. The investigated personnel stated that the police used collection equipment to recover chat records from uninstalled Telegram and Slack software.
Based on the blogger's analysis, the current key focus groups of crypto practitioners 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 a nationwide screening, due to Hangzhou Public Security's leading blockchain technology, the concentration of web3 talent second only to Shenzhen (in the lawyer's personal opinion), and the thriving cross-border virtual currency transactions in Hangzhou and even the entire Zhejiang region.
II. Lawyer's Judgment on Why Crypto Practitioners Are Being 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 industry on the basis of the "9.24 Notice". But if the Hangzhou incident is indeed true, the following factors need to be considered:
(I) Hangzhou may have large crypto teams involved in criminal cases, 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 of China, the police's investigation of crypto practitioners in their jurisdiction is mainly based on future financial regulation of cryptocurrencies;
(III) Considering tax department perspectives, 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 is 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 cooperate with investigations, further data recovery from citizens' laptops through technical means requires following legal procedures (such as issuing a "Seizure Decision"), and cannot be done merely through verbal requests.
III. Is the Mainland Crypto Winter Coming Again?
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 and legal tender exchange, virtual currency inter-exchange, buying and selling virtual currencies as a central counterparty, 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 also be held legally responsible. Additionally, our country requires financial institutions and non-bank payment institutions not to provide services for virtual currency transactions (using WeChat, Alipay, bank cards to buy and sell virtual currencies actually violates the "9.24 Notice"), and mainland Chinese enterprises cannot contain terms like "virtual currency", "virtual assets", "cryptocurrency", "crypto assets". Combined with the 2021 mining ban "9.3 Notice" ("Notice on Rectifying Virtual Currency 'Mining' Activities"), 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 buying and selling virtual currencies (with subjective criminal intent clearly provable). Therefore, to completely avoid legal risks in the crypto space, 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 is also possible that it is simply due to some legal issues in the Hangzhou crypto circle, which may not extend to a nationwide movement. At least for now, it cannot be confirmed that the mainland crypto industry is experiencing another Crypto Winter.
IV. Final Words
The Monetary Authority of Singapore (MAS) issued policy guidelines on May 30, specifying Singapore's strongest web3 regulation to be implemented on June 30 this year; 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 U.S. crypto policy is not actually that friendly...
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, government agencies, etc.) to accept it. So true crypto believers actually need not care what centralized institutions do to cryptocurrencies, but should continuously strive to make cryptocurrencies truly embody their value.
