Popular crypto derivatives are called perpetual contracts that enable traders to bet on the prices of Bitcoin or Ethereum but not owning the asset. In contrast with conventional futures, they do not expire, and they are maintained at spot prices by means of such mechanisms as funding rates. Traders are allowed to make long or short positions, usually leveraged to the extreme degree of 100x. This aspect has rendered perpetuals to be very speculative and controversial within the Chinese law system.
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Court Ruling Makes Gambling Consonant to Contracts
Guidance Case No. 146 of the Supreme People’s Court refers to gambling as a result of chance. This principle has been used by Chinese courts in cases of perpetual contracts based on the fact that as in gambling such as dice rolls, one bets the direction of the price. This interpretation is further supported by high volatility along with leverage and liquidation regulations built into the platforms.
The Shanghai Songjiang court in 2024 decided that possession of virtual currency was not unlawful and it was treated as property with value. But speculative trading contracts were voided under the China Civil Code. Previously, in 2021, the case of BKEX became a precedence. Perpetual contracts with leverage of 1000x were provided to the operators through USDT. The court found this operation to be a form of disguised gambling, and guilty the operators as well as an agent in a commission-based referral. A second example was that of an offshore exchange operated by Shenzhen which made 80 million RMB. The platform was found guilty of conducting business illegally even though it was claimed that it did not affect the financial markets.
Ban in Regulations Since 2017
In 2017, China outlawed domestic cryptocurrency trading and later in 2021 there was the 9.24 Notice that outlawed overseas exchanges that served Chinese clients. Futures trading management ordinance also prohibits unauthorized future trading such as perpetual contracts. Combined, these regulations seal legal avenues of unending contractual practice in China.
To individuals, agreements with permanent platforms would not hold water, and traders have no legal recourse in case money is lost. Foreign exchange laws may also be violated by the cross-border transactions. Commission based recruitment is a risk of assisting illegal business activity. In the case of platforms, the provision of perpetual contracts without permission of a state subjects the operators to criminal prosecutions of illegal business conduct to gambling, often involving large fines and imprisonment.
Whereas China adopts a hard line approach, other jurisdictions govern perpetual contracts through financial law. The United Kingdom considers them as derivatives with only qualified investors allowed. Since June 2023, Hong Kong allows retail crypto investment but does not allow derivatives. The strategy in China is one of the most rigid with protection to consumers and financial stability.
