Guangzhou Court Ruling: Lending Crypto Invalid, Compensation at Acquisition Cost
TREE NEWS reports: A Guangzhou court has ruled that a verbal agreement to lend one unit of virtual currency is invalid, and that the borrower must compensate the lender at the original acquisition cost rather than the current market price. The case, reported by Guangzhou Daily’s Xinhua City channel, involved a man who lent one virtual coin to a friend with a promise to return it within two days. When the friend failed to do so, the lender sued for the return of the coin or its market value.
Ruling Details
The Guangzhou Intermediate People’s Court held that the lending arrangement violated Chinese regulations prohibiting virtual currency trading and related financial activities. The court declared the agreement void, citing public policy and financial stability concerns. Since the coin could not be returned, the court ordered the borrower to compensate the lender based on the coin’s acquisition cost, not its current market valuation. This approach aligns with the principle that illegal contracts should not yield benefits, and it prevents the lender from profiting from a transaction deemed unlawful.
Industry Implications
This ruling reinforces China’s strict stance against cryptocurrency trading. For individuals and entities engaged in peer-to-peer lending of digital assets, it signals that such agreements may be unenforceable and that recovery is limited to historical cost, potentially leaving lenders exposed to significant losses if asset prices have risen. It also highlights a broader trend: Chinese courts are treating crypto-related activities as illegal, applying contract law principles to deny enforcement while still providing limited remedies to prevent unjust enrichment.
Forward-Looking Perspective
As China continues to enforce its crypto ban, this case could set a precedent for similar disputes, encouraging courts to apply consistent rules for compensation. It may also deter future lending arrangements and push participants toward compliant alternatives, such as tokenized real-world assets on regulated platforms. Globally, this ruling contrasts with jurisdictions that recognize crypto as property, underscoring the fragmented legal landscape and the importance of jurisdiction-specific legal advice for crypto holders.
