Chinese party-state actions have recently generated “positive” news for bitcoin. Hong Kong has seemingly embraced cryptocurrency exchanges by offering a regulated platform for them - some writers suggested that this represented the Chinese Communist Party supporting bitcoin.

Then, there was news that a Shanghai court seemed to be validating bitcoin as a unique digital currency. Media sources linked to a report posted on Weixin by the official account of the Shanghai Second Intermediate People's Court and generated a wave of social media response, partly helped by a tweet by Justin Sun on the topic.

Placing the Report in Context

The Shanghai No. 2 Intermediate People's Court is the second lowest level in the court system of the PRC, tasked to handle local issues and to be a court of appeal from what are known as "Basic People's Courts." They're usually found in all prefectures and cities. One similarity the Chinese court system shares with the American court system is that each city's cases bring different exposure for courts to consider.

So, while the Southern District of New York court has a reputation for "policing" Wall Street, it's likely that disputes arising from cryptocurrency and bitcoin are going to pop up in both Beijing and Shanghai, which are China's two largest commercial and financial hubs.

This is the context behind why the Court made the report. The Beijing Arbitration Commission, a non-for-profit focused on legal arbitration, also made a similar report in 2020.

The overarching number of Chinese laws focused on cryptocurrencies and bitcoin were drafted by the administrative entities in this part of the law: namely, the country's central bank (The People's Bank of China or PBoC), the Ministry of Industry and Information Technology, the China Banking Regulatory Commission, the China Securities Regulatory Commission, and the China Insurance Regulatory Commission.

Their regulatory notices in 2013, 2017, and 2021 are cited throughout the report. The 2013 and 2017 notices cover the People’s Bank of China banning domestic banks from transacting in bitcoin, while the 2017 notice banned initial coin offerings. The 2021 notice served as a reiteration of these two notices, making it clear that centralized exchanges were conducting illegal financial activity.

This Report Isn’t That Different

That the Shanghai No. 2 Intermediate People's Court analyzed bitcoin this way is similar to previous reports - and describes the status quo in China regarding Bitcoin and cryptocurrencies. Namely, that the use of Bitcoin as legal tender is something that has been made illegal in several ways, and that several courts have interpreted the overarching framework of cryptocurrency regulatory notices in the following form:

1- Bitcoin is not currency according to the Chinese party-state, and use of it as such is not allowed by the Chinese party-state. This includes people transacting with one another in cryptocurrency. Since this behavior is not lawful, the state is not actively involved in stopping it, but you may not find recourse for invalid contracts/payments in the court system. Different courts have ruled differently on whether the usage in a particular situation was related to this "illegal" usage.

2- Bitcoin and other cryptocurrencies are seen as commodities/property and are protected from seizure under Chinese law. Chinese law doesn't prevent the circulation of bitcoin and its possession. Absent a significant shift in Chinese party-state policy on the topic, courts will likely continue reading the broad confines of the regulatory notices that form the centerpiece of Chinese law on bitcoin as protecting the ownership of bitcoin.

The first three paragraphs of the first section cite the 2013, 2017, and 2021 regulatory notices and general bans on bitcoin-related settlements for domestic financial institutions and the closure of Chinese-based cryptocurrency exchanges.

The question here isn't so much whether bitcoin is illegal in some contexts but how the Court can handle custody of this new asset and the "embarrassment" of potentially needing to use a third party to dispose of a valuable yet illegal usage of bitcoin.

The second section reinforces that bitcoin and other cryptocurrencies are illegal when used in a monetary sense based on the regulatory notices above. The last paragraph is the one where everybody has focused: in struggling to understand how to fit bitcoin as a commodity, the Court struggles through to a definition that a commodity is produced by social labor - and that bitcoin's unique and non-repeatability gives it space to operate distinctly from other cryptocurrencies.

The last sections reinforce the specifics of bitcoin-as-commodity regarding specific cases and resolutions. The United States and its treatment of bitcoin as a commodity is cited as a precedent - in the end, bitcoin's attributes as property "cannot be denied" - a well-known and litigated line in Chinese jurisprudence.

The One Evolving Difference

One exciting element of this report is how it teases out bitcoin from other cryptocurrencies. This isn't something new from a global context.

For example, the SEC in the United States does not seek to regulate bitcoin because it regards its decentralization as more complete than other tokens and cryptocurrencies. Under Gary Gensler, the SEC has become more aggressive against even ethereum on this foundation. Having state authorities determine that bitcoin is distinct does matter.

That's the one part of this report that stands out. And while this is more of an interpretation from one (relatively low-level) Court of how China’s regulations should be implemented with regards to bitcoin, it may be part of the more significant, global shift towards viewing bitcoin as being genuinely distinct, separate from even ethereum, nevermind other cryptocurrencies.