Judicial Disposal of Virtual Currency: Public Opinion Risks and Prevention
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Judicial Disposal of Virtual Currency: Public Opinion Risks and Prevention
In the judicial disposal business of virtual currencies, there is a legal risk point that is extremely easy for judicial authorities and disposal companies to overlook: public opinion risk.
Navigating Web3 tides with focused insightsAuthor: Attorney Liu Zhengyao
1. What is public opinion risk?
In a broad sense, public opinion risk refers to the possibility of negative public discourse or social sentiment—triggered by attention and reactions from the public, media, or other societal forces toward a specific event, policy, or action—causing adverse effects on individuals, organizations, or the state.
Within the context of this article, public opinion risk in judicial disposal specifically refers to negative public sentiment and criticism directed at judicial authorities arising from improper handling during the judicial disposal process of seized virtual assets.
Currently, within Chinese courts' case management systems, one performance metric evaluates whether cases handled by judges have triggered public opinion incidents. This demonstrates that judicial authorities place significant importance on public opinion.
2. What are the public opinion risks in judicial disposal?
Based on Attorney Liu’s practical experience in cryptocurrency-related criminal cases, public opinion stemming from the disposal of seized virtual currencies generally arises in the following forms:
(1) Legal Application Disputes
Currently, China has no dedicated laws or regulations specifically addressing virtual currencies. Instead, regulatory oversight exists only through policy documents issued individually or jointly by national ministries and agencies.
As a result, courts across different regions may reach divergent conclusions when determining the nature of seized virtual currencies in criminal cases: some classify them as property, others as computer information system data, and some recognize both characteristics simultaneously. Consequently, disputes often arise when disposing of seized virtual currencies after (and sometimes even before) court judgments.
(2) Protection of Victims’ Rights
In crimes involving fraud, theft, or illegal fundraising with virtual currencies as proceeds, the seized digital assets should theoretically be returned to victims. However, in high-frequency cryptocurrency-related cases such as illegal gambling platforms, pyramid schemes, and unlicensed business operations, there are generally no legally recognized “victims,” and thus judicial authorities are not required to return the seized virtual currencies.
Once these seized virtual currencies are liquidated and transferred into state coffers, large numbers of grassroots investors/participants—especially in pyramid scheme cases—often claim to be “victims” and demand repayment from either the judiciary or defendants. When their demands go unmet, it frequently triggers public outcry.
(3) Market Value Volatility of Virtual Currencies
Except for stablecoins, significant price fluctuations are common among virtual currencies. For concluded criminal cases involving crypto, this volatility has relatively minor impact (although in practice, there remains substantial debate over how to determine涉案amounts for unresolved cases where crypto hasn’t yet been liquidated). However, when virtual currencies are disposed of prior to judgment, any notable difference between the market price at trial versus the time of case initiation can lead to vastly different expectations among stakeholders—including prosecutors, courts, suspects/defendants, victims, and their families—resulting in intense conflict.
For example, if the value of seized cryptocurrencies plummets nearly to zero, the suspect/defendant will likely argue for acquittal due to negligible harm. Conversely, prosecutors and victims would insist on using the original market price at case initiation to secure conviction and sentencing.
Thus, the timing of judicial disposal becomes pivotal in shaping case outcomes—and simultaneously increases the likelihood of public opinion crises.
(4) Compliance Concerns in Disposal Processes
Under current regulations such as the "September 24 Notice," cryptocurrency-to-fiat exchange services are prohibited within mainland China. Legitimate disposal entities must therefore conduct liquidation overseas. However, some disposal companies falsely claim offshore operations while actually facilitating RMB-for-crypto exchanges domestically.
Last month, Attorney Liu participated in a cryptocurrency-related pyramid scheme trial in a county in western China. During the hearing, we highlighted that the seized virtual currencies were liquidated by a disposal company through a domestic individual, Mr. Zhang, who directly wired over 20 million RMB in “proceeds” to the local county treasury via his personal bank account. In essence, this amounted to Mr. Zhang and the disposal company purchasing the seized crypto from local police using RMB. Such actions constitute illegal financial activity involving Mr. Zhang, the disposal company, and the local public security bureau.
If such information spreads online, it could easily escalate into a full-blown public opinion crisis.
Those familiar with asset disposal may also recall an incident involving a Chengdu-based disposal firm whose executive lost funds by trading futures contracts using seized virtual currencies—an equally sensitive issue prone to sparking public backlash.
The root cause of these incidents lies in inadequate professionalism and non-compliant disposal models employed by certain disposal firms.
(5) International Public Pressure
China's stance on virtual currencies ranks among the strictest globally. While the U.S. also regulates crypto, its approach is comparatively more lenient. Coinbase, a U.S.-based exchange, holds considerable global influence. Since 2017, however, China has banned all cryptocurrency exchanges from operating within its borders and prohibits foreign platforms from serving mainland users.
Recently, rumors circulated that the Chinese government plans to adopt Bitcoin as a strategic reserve to compete with the U.S. Attorney Liu believes this is false information. In the foreseeable future, China is unlikely to officially recognize or accept virtual currencies.
This creates a contradictory position for Chinese judicial bodies: they do not acknowledge virtual currencies as legitimate assets, yet seek to liquidate them for value recovery.
If details of such judicial disposals leak internationally, they could generate unfavorable global narratives targeting both China’s judiciary and its government.
3. How to Mitigate Public Opinion Risks During Disposal
Mitigating public opinion risks in judicial disposal is straightforward—primarily through proactive prevention, nipping potential crises in the bud. Judicial authorities requiring disposal services must carefully select reputable and compliant disposal companies.
The evolution of disposal practices—from Phase 1.0 (pre-2021), to Phase 2.0 (pre-2023), to the current Phase 3.0 (2023–present)—has transitioned from crude and unregulated methods to professional, compliance-driven models. Especially with increasing involvement of specialized web3 and cryptocurrency lawyers, comprehensive legal compliance frameworks can now be provided throughout the entire disposal process. These professionals play critical roles in ensuring proper application of laws and regulations, protecting parties’ rights, auditing disposal procedures, and defusing potential public opinion crises.
4. Final Thoughts
In 2025, China may see adjustments in its regulatory approach toward virtual currencies. Attorney Liu anticipates that changes will likely first emerge in the judicial sector, particularly in resolving urgent issues such as valuation, price appraisal, and standardized disposal of seized crypto assets. However, opening up private cryptocurrency investment or allowing domestic cryptocurrency exchanges remains highly improbable in the near term.
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