In criminal cases involving virtual currencies, it is often necessary for judicial authorities to determine the amount of cryptocurrency involved. However, under current domestic regulatory policies on virtual currencies, no institution is allowed to provide pricing services for cryptocurrency transactions. Although in practice, judicial authorities often liquidate seized cryptocurrencies through third-party agencies, this typically occurs after the court ruling.

According to Lawyer Liu’s practical experience, it is difficult to determine the value of involved cryptocurrencies at the start of criminal proceedings. So, what should the court do when the value of seized cryptocurrency appreciates or depreciates during the criminal procedure?

Lawyer Liu discusses this topic from three perspectives: the high volatility of cryptocurrency value, the importance of determining the amount involved in criminal cases, and how to determine the value in criminal cases involving virtual currencies.

1. The High Market Volatility of Virtual Currencies

As Lawyer Liu is typing, Bitcoin’s price has already dropped to $93,000. While analyzing Bitcoin’s price trends is essentially a financial analysis, and Liu, as a legal professional, has only a superficial understanding of finance, from a metaphysical perspective, there seems to be some truth to it: during China’s Spring Festival, the cryptocurrency market tends to not see much of a rise.

(On the sixth day of the Chinese New Year, the crypto market seemed to be filled with red. While this may reflect some traditional festive colors, for those in the crypto world, it was more like a scene of despair.)

The high volatility of prices is a fundamental characteristic of mainstream and even non-mainstream cryptocurrencies (except for stablecoins like USDT, USDC, etc.). However, anyone with a sense of law knows that the basic characteristic of law is stability, and it abhors “hyperactivity.” The high volatility of cryptocurrency prices inevitably causes significant challenges in the implementation of the law. For instance, when the police file a criminal case, the seized virtual currency might be worth only 1 million RMB, but by the time the court issues a ruling, the value of those cryptocurrencies may have soared to 10 million RMB. Alternatively, the value of seized virtual currencies might drop to zero by the time the court makes its judgment (this is a common scenario in the crypto world).

If it is the former situation, aside from the defendant and their defense lawyer and family being unhappy, everyone else will be pleased—victims will be assured of compensation, and law enforcement will have more motivation to pursue the case. However, in the latter case, the opposite happens: the defendant and their defense lawyer and family will be happy, while everyone else will be disappointed, as the value of zero in cryptocurrency may indicate that the case no longer constitutes a criminal offense.

2. Why is it important to determine the amount involved?

At present, most cases involving virtual currency are concentrated in the fields of economic crimes and crimes that impede social management order (such as crimes of trust). A very important factor in the constituent elements of these crimes is the amount involved. For example, under normal circumstances, if the amount involved is less than 3,000 RMB, it does not constitute a crime of fraud. In pyramid schemes, if the amount involved is less than 2.5 million, it cannot be sentenced to more than five years in prison. (Here, Lawyer Liu uses the controlled variable method in science and engineering experiments and does not consider other circumstances.)

In addition, for criminal cases, not only the criminal case filing stage of the police must be considered, but also the subsequent procedures of the procuratorate and the court. An unpredictable amount of money involved will be like Schrödinger’s cat, making prosecutors and judges who pursue high-quality case handling uneasy.

Therefore, a clear amount of money involved is crucial to the filing, review and prosecution, trial, and even subsequent execution of criminal cases.

3. What to Do After the Value of Involved Virtual Currencies Appreciates or Depreciates?

From the analysis above, we understand that one crucial task in judicial practice is determining the amount involved in virtual currency-related criminal cases. But how exactly should this be done?

Currently, there are several methods to determine the amount involved in criminal cases:

1. Determined by Price Recognition Centers: According to the “Price Recognition Guidelines” issued by the National Development and Reform Commission, the price in criminal cases can be recognized by price recognition agencies (i.e., local price recognition centers). The methods used include market-based, cost-based, income-based, and expert consultation approaches. However, according to the “9.24 Notice” (Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading and Speculation), no institution in China is allowed to provide pricing services for virtual currency transactions. Therefore, there is significant controversy about whether price recognition centers can assess the price of involved virtual currencies. Lawyer Liu believes that price recognition centers should not be involved in determining the price of virtual currencies in criminal cases.
2. Market Transaction Price as Reference: Some judicial authorities refer to the market transaction prices of virtual currencies on mainstream exchanges (using USDT as the benchmark) to determine the price of involved virtual currencies. For example, the criminal judgment in the case of Li’s theft (Shenzhen Futian District Court, 2020, Criminal Judgment No. 0304) used this method. However, there is a flaw in this approach: China currently does not allow virtual currency exchanges to provide services to mainland Chinese residents. Therefore, whether judicial authorities can use the pricing services of foreign virtual currency exchanges as an exception is, according to Liu, not permissible.
3. Price Determination from Third-Party Agencies or Judicial Appraisal Opinions: Although third-party appraisal agencies are different from official price recognition centers, they still provide pricing services for virtual currencies, and this model has no essential difference from the first one. It is difficult to avoid the prohibitions set forth in the “9.24 Notice.” Especially in judicial appraisals of involved virtual currencies, such actions exceed the scope of judicial appraisal. Judicial appraisal agencies do not have the authority or qualification to determine the price of virtual currencies involved in a case.
4. Based on the Suspect/Defendant’s Proceeds from Sale or the Victim’s Loss: Since virtual currency investment and trading are not prohibited in China, in criminal cases involving asset return (such as fraud or theft) or asset confiscation (such as organizing and leading pyramid schemes, operating gambling, or illegal business), if the suspect/defendant has already sold or exchanged the involved virtual currency for other assets, the realized value from the sale or the value of the exchanged property can be used to determine the amount involved. If the proceeds from the suspect/defendant’s sale are difficult to calculate but the victim’s loss amount is clear, the victim’s loss amount should be prioritized to determine the involved amount. This is based on a basic principle in criminal cases: the “victim does not profit” principle (It is also necessary to uphold the principle of “in case of doubt, favor the defendant). For example, if the victim bought virtual currency for 10,000 RMB and it was stolen, and by the time the court issues its judgment the virtual currency has appreciated to 100,000 RMB, the court should determine the amount involved as 10,000 RMB. If the victim’s loss amount (purchase price) cannot be determined, the market value of the virtual currency at the time of the judgment can be considered.

4. Final Thoughts

The price volatility of virtual currencies makes it crucial for all parties involved in criminal cases to pay attention to the value of virtual currencies involved. Even for stablecoins like USDT or USDC, we cannot assume that their value will always remain equivalent to the US dollar, as there is no guarantee that Tether or other centralized institutions will not collapse. Therefore, it is essential to promptly, accurately, and legally determine the value of involved virtual currencies and properly handle the appreciation or depreciation of these assets during the seizure period in criminal cases.

In current judicial practice, there are mature solutions for the legal and compliant judicial disposal of involved virtual currencies, which is crucial for protecting the legal rights of victims, suspects, and defendants in criminal cases.

Disclaimer:

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