Introduction
Since 2019, I've represented clients in multiple disputes involving virtual currencies like Bitcoin (BTC), Litecoin (LTC), Tether (USDT), Ethereum (ETH), EOS, and LAMB tokens. These cases spanned spot trading, contract trading, and strategic delegation. The 2020-2021 market volatility amplified both opportunities and risks in this sector.
This article examines the legal status of leveraged "contract trading" – a unique derivative practice in virtual currency markets – under Chinese law and international frameworks.
Understanding Virtual Currency Contract Trading
1. What Is Contract Trading?
Unlike immediate "spot trading," contract trading involves standardized agreements to buy/sell assets at predetermined future prices. Key characteristics include:
- Derivative Nature: Tracks price movements without owning underlying assets
Directional Strategies:
- Long positions (betting on price increases)
- Short positions (betting on price declines)
Contract Types:
- Delivery Contracts: Automatically settle at expiration
- Perpetual Contracts: No expiry (funding rates maintain balance)
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Legal Framework Analysis
2. Determining Applicable Law
Most platforms specify foreign governing laws in their Contract Trading Agreements. Under China's Law on the Application of Law in Foreign-Related Civil Relations:
- Party Autonomy: Generally respects choice-of-law clauses (Article 41)
- Public Policy Exception: Foreign laws violating Chinese public order may be disregarded (Article 5)
Key Consideration: Even with foreign governing law, Chinese courts retain discretion to evaluate validity through public policy lenses.
3. Validity Under Chinese Law
Per China's Civil Code, valid legal acts require:
- Capacity to act
- Genuine intent
- Compliance with mandatory laws/public morals
Regulatory Landscape
- 2013 Notice: Recognized virtual currencies as "virtual commodities" while denying monetary status
- 2017 Announcement: Banned ICOs and fiat exchange services
Critical Distinction: These are administrative guidelines, not laws with mandatory force.
Judicial Divergence
Courts show split interpretations:
- Shenzhen Case: Voided arbitration award supporting BTC-fiat conversion as violating public interest
- Guangxi Case: Upheld private virtual currency transactions under "what's not prohibited is permitted"
Policy Implications & Future Outlook
The tension between recognizing virtual assets' value while restricting related activities creates legal ambiguities:
- How to reconcile commodity status with trading restrictions?
- Can asset protection claims succeed if activities are deemed against public morals?
As blockchain technology evolves, regulators face the challenge of balancing innovation with risk containment. The ultimate impact of virtual currencies on global economic systems remains an open question.
FAQ Section
Q1: Is contract trading legal in China?
A: While not explicitly prohibited, platforms often operate under foreign jurisdictions. Domestic enforcement focuses on fiat exchange and ICOs.
Q2: What happens if my trading platform defaults?
A: Recovery depends on the governing law specified in your agreement and applicable conflict-of-law principles.
Q3: Are perpetual contracts riskier than delivery contracts?
A: Perpetuals carry funding cost risks but offer flexibility. Both involve significant leverage risks.
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Q4: Can Chinese courts enforce foreign judgments on virtual currency disputes?
A: Enforcement requires treaty recognition and compliance with Chinese public policy standards.
Q5: How do regulators view decentralized finance (DeFi) platforms?
A: Most jurisdictions are developing frameworks for DeFi, with China maintaining strict capital flow controls.
Disclaimer: This analysis represents general observations and does not constitute legal advice. Market participants should consult qualified professionals regarding specific situations.