Author: Liu Zhengxiao
Original Title: Is the Mainland Crypto Winter Coming Again? Rumors Suggest Hangzhou is Conducting a Large-Scale Investigation on Crypto Practitioners
Introduction
Yesterday, Lawyer Liu just wrote an article "Is the Crypto 'Far Sea Fishing' About to End?", discussing the legal risks of domestic crypto industry practitioners. This morning, I saw a piece of news: Hangzhou, an area with relatively active web3 entrepreneurship, has had local police conducting investigations on crypto practitioners in their jurisdiction since June 8.
I. What are the Police Investigating
According to a blog post by a network platform blogger (@mirrorzk), Hangzhou's crypto practitioners were verbally notified by police to bring their laptops to the police station to cooperate with data collection, information recovery, and statement recording. The investigated personnel stated that the police used collection devices to recover chat records from uninstalled Telegram and Slack software.
According to the blogger's analysis, the current key focus groups 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 operators, etc.)
The blogger analyzed that Hangzhou's investigation might be a prelude to a nationwide investigation, due to Hangzhou's leading blockchain technology in public security, the concentration of web3 talent second only to Shenzhen (in the lawyer's personal opinion), and the active cross-border virtual currency transactions in Hangzhou and even the entire Zhejiang province.
II. Lawyer's Judgment on Why Crypto Practitioners Might Be 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". However, 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) From a tax department perspective, as cryptocurrencies are natural tax avoidance tools. If our country wants to tax cryptocurrency holders in the future, they may need to start from pilot cities to "cross the river by feeling the stones" and establish a basis 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 through verbal requests alone.
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 exchange with legal tender, exchange between virtual currencies, acting as a central counterparty in virtual currency trading, 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.
Simultaneously, 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 legally liable. Additionally, our country requires financial institutions and non-bank payment institutions not to provide services for virtual currency transactions (using WeChat, Alipay, or 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", or "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 individual 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 where the law does not prohibit, it is permitted. As long as our country has not explicitly forbidden citizens from investing in virtual currencies, no one can say that buying and selling virtual currencies in China is illegal.
Yet, legal theories are beautiful. In practice, we have encountered too many instances of being convicted and sentenced just for buying and selling virtual currencies (with subjective criminal intent clearly provable as non-existent). Therefore, to completely avoid crypto legal risks, I now recommend that mainland citizens do not speculate or trade virtual currencies.
Returning to the Hangzhou incident, it indeed cannot be ruled out as a prelude to a nationwide "currency ban" activity. However, it may also be purely due to some legal events in Hangzhou's crypto circle, which may not expand into a nationwide movement. At least currently, it cannot be confirmed that the mainland crypto industry is encountering another Crypto Winter.
IV. Final Words
The Monetary Authority of Singapore (MAS) released policy guidelines on May 30, specifying the strongest web3 regulation in Singapore's history to be implemented on June 30; 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 acts ambiguously; the US 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 (like multinational companies and government agencies) to accept it. True crypto believers actually need not care about what centralized institutions do to cryptocurrencies, but should continuously strive to make cryptocurrencies truly reflect their value.
