Author: Lawyer Xu Qian
introduction
Since the birth of Bitcoin, its price has skyrocketed several times, driving the global cryptocurrency craze. At its peak, Bitcoin has exceeded $100,000, and the total market value of cryptocurrencies has even exceeded the global circulation of US dollars. As a result, a large number of cryptocurrency trading platforms have emerged, and over-the-counter transactions using USDT as a medium have become active.
Under my country's current policies, some people use crypto assets to exchange foreign currencies for RMB privately, earning exchange rate differences and service fees. This seems harmless, but it is actually a high-pressure operation. Such operations may involve Article 225 of the Criminal Law on illegal business operations and Article 191 on money laundering.
In this post, Mankiw's legal team will combine practical experience to help you analyze: Why do crypto transactions frequently step on the high-voltage line of "cross-border currency exchange"? What do you need to pay attention to?
Is cryptocurrency “property” or “data”? How does the law determine it?
1. Title
Domestic and foreign literature on crypto assets such as Bitcoin is rather confusing, with concepts such as cryptocurrency, crypto assets, digital currency, digital assets, and virtual currency often being mixed up. It is precisely because it is difficult for all parties to reach a consensus on the attributes of cryptocurrency, such as whether cryptocurrency is currency, intangible assets, claims, or data that symbolizes the rights of the holder. Judicial authorities have different attitudes on this, and there is no consensus in academia.
2. my country’s legal position on cryptocurrencies
1. From the perspective of civil law, cryptocurrency is neither currency nor securities. Civil legislation and judicial practice have affirmed the virtual property attributes of cryptocurrency (Article 127 of the Civil Code), which should be protected by law .
2. From the perspective of criminal law, cryptocurrency meets the definition of “property” in Article 92 of the Criminal Law. Cryptocurrency can be transferred with money as consideration to generate economic benefits. It has the characteristics of value, scarcity, and disposableity. It meets the constituent elements of online virtual property and is protected by law. Therefore, it is also a form of property .
Although in terms of form, cryptocurrency is embodied as a kind of digital or computer information system data. But we should see the essence of its assets or property through the form of data. Bitcoin, Ethereum, etc. are the digitization of assets, and their core is assets rather than data. Just like a ledger, its value does not lie in the paper, but in its recorded content . From the perspective of criminal law, many contents such as commercial secrets and state secrets protected by criminal law are presented through data. If the perpetrator steals digital technical information and state secrets stored in other people's computers through computer network means, it may constitute the crime of infringing on commercial secrets and illegally obtaining state secrets. The reason is that the data infringed represents commercial secrets or state secrets.
Simply put, although crypto assets are presented in the form of data, they represent tradable and cashable economic benefits , and should be regarded as digital assets with "property attributes" from a legal perspective.
Why are cryptocurrency transactions frequently characterized as “cross-border currency exchange”?
In recent years, more and more cases involving cryptocurrencies have been characterized as "disguised cross-border currency exchange" and the relevant responsible persons have even been held criminally liable. The reason is not that cryptocurrencies themselves are illegal, but that they are highly similar to traditional illegal currency exchange in terms of transaction paths, technical characteristics and fund functions. Specifically, it is mainly reflected in the following aspects:
1. The behavior pattern "simulated" the process of currency exchange and fell into the category of illegal business operation
Traditional illegal currency exchange is often carried out through underground banks, agent foreign exchange purchases, fictitious trade backgrounds, etc., while in the cryptocurrency scenario, traders complete the value conversion through "RMB → cryptocurrency → foreign currency" or reverse path , thereby circumventing official foreign exchange settlement and sales supervision and breaking through foreign exchange purchase quota restrictions.
Although such transactions do not directly touch the banking system, the result is still the illegal exchange of RMB and foreign currencies, which constitutes "other illegal business activities that seriously disrupt the market order" as stipulated in Article 225 of the Criminal Law. In many cases, cryptocurrency platforms, market makers, and intermediaries are held accountable as key players in the "exchange chain" and even convicted.
In judicial practice, cryptocurrency exchange often presents the following characteristics:
Peer-to-peer matching, non-financial license: matching transactions through communities or platforms, without obtaining relevant qualifications for foreign exchange or payment business.
Decoupling of fund collection and payment from currency flow: collecting funds domestically and issuing currencies overseas, or vice versa, resulting in the separation of fund transfer and crypto asset delivery.
The nature of the service is obvious: participants are charged handling fees or exchange rate differences, and it is no longer "personal asset allocation" but rather a "currency exchange service."
This path of "using currency as a bridge and disguised exchange" is essentially using technical means to circumvent the state's regulatory boundaries on capital projects.
2. Technical characteristics promote "hiddenness" and "high liquidity", breaking through regulatory tracking capabilities
Anonymity and coin mixing mechanisms weaken KYC capabilities
The decentralized mechanism of crypto assets means that most transactions do not require real names or reporting, and can even further break the on-chain association between addresses and identities through currency mixing services. This "broken chain + mixing" mechanism greatly reduces the ability of regulators to identify the flow of funds and participants.
Cross-border transactions without physical border restrictions
Crypto assets can be transferred across borders through the Internet, without relying on bank accounts or physical channels. A USDT address can send and receive assets at any node in the world without going through customs, banks or foreign exchange control systems - this makes technically unlimited global transfer capabilities, and the difficulty of supervision is much higher than the traditional currency system.
The “gray channel” that exceeds the $50,000 limit
Some investors use the crypto asset channel to convert RMB into USDT, and then convert it into foreign currencies such as USD and HKD, and then remit it overseas for investment, house purchase, and car purchase. This method seems to be just asset investment, but in fact it has exceeded the annual USD 50,000 limit for individual foreign exchange purchases, and is considered "hidden foreign exchange purchases."
The role of transaction matching is difficult to define, and the platform risks are high
When matching over-the-counter transactions, some platforms provide addresses, fund custody, exchange rate intermediary, dispute mediation and other services to buyers and sellers, which has gone beyond the scope of information matching and is actually involved in "currency exchange". Once large-scale transactions or exchange rate differences are profitable, they are likely to be considered by judicial authorities as exchange organizers rather than ordinary users.
III. Macro-level impact on national financial security and regulatory order
The payment and pricing functions of crypto assets have partially replaced the role of RMB in cross-border scenarios. As more and more domestic funds go abroad through the "currency standard" method, the cross-border settlement status of RMB is challenged, which may affect macroeconomic regulation in the long run.
Forming an "underground financial system" parallel to the banking system
The circulation of stablecoins such as USDT has enabled some market participants to bypass the banking system and establish a gray financial network based on on-chain assets. Once this network intersects with high-risk behaviors such as overseas gambling, fraud, and tax evasion, it can easily lead to systemic risks.
It is difficult to check where the funds go, which encourages illegal activities
Anonymous transactions + currency mixing mechanism + uncensored channels facilitate illegal crimes such as money laundering and terrorist financing. This is not only a compliance issue, but also a financial anti-terrorism and national security issue.
What should individual investors pay attention to when trading cryptocurrencies?
1. Avoid participating in OTC businesses such as "foreign exchange purchase" and "exchange rate hedging"
Using cryptocurrency as a medium to earn exchange rate differences by providing cross-border exchange and payment services is to use the special properties of cryptocurrency to circumvent national foreign exchange supervision and realize the value conversion of foreign exchange and RMB through the exchange of "foreign exchange-cryptocurrency-RMB", which is a disguised foreign exchange transaction. Individual investors should be cautious to avoid being held criminally liable for suspected "illegal business operations".
II. Strictly follow the regulatory requirements for individual annual foreign exchange purchase quotas
Buying and selling cryptocurrencies, on the surface, is the act of buying or selling cryptocurrencies, but in essence it is the conversion of currency value between foreign currencies and RMB, which is considered as foreign exchange purchase and settlement. According to the "Detailed Rules for the Implementation of the Individual Foreign Exchange Management Measures", the annual total amount management is implemented for individual foreign exchange settlement and domestic individual foreign exchange purchase. The annual total amount is the equivalent of US$50,000 per person per year.
3. Avoid using anonymous recharge channels
When trading cryptocurrencies, you should choose a platform with a formal KYC process and ensure that the transaction records are transparent. It is difficult to track the legitimacy of the source of funds through anonymous channels such as P2P over-the-counter transactions, mixer services, and privacy coin exchanges. If suspected of money laundering or funding illegal activities, the platform may freeze the account, resulting in financial losses. In addition, anonymous channels are easily exploited by hackers, and the safety of user funds cannot be guaranteed.
4. Retain legal certification materials
If you are studying abroad, you can provide proof of your admission letter, tuition payment notice, and other supporting documents to prove the legitimacy of your cryptocurrency trading. If you are a citizen working in China, you can keep your labor contract, salary slip, tax payment certificate, etc. to prove that you are not engaged in cryptocurrency trading.
Conclusion
Cryptocurrency itself is not an "original sin", the problem lies in whether the transaction process is cross-border, circumvents foreign exchange, is anonymous, and evades supervision . Once these behaviors are linked to illegal operations, money laundering, and foreign exchange controls, they may cross the red line.
It is not terrible not to understand the law, but it is terrible to rush into the gray area in a state of "ignorance is fearless". Whether individual investors or practitioners, before participating in crypto asset transactions, they should be clear about the legal boundaries and avoid unnecessary criminal risks .
