Does the involved cryptocurrency need to be liquidated?

Author: Attorney Liu Zhengyao

In criminal cases today, cybercrimes account for nearly half of all cases; among these, crimes involving virtual currency are increasing rapidly and appear poised to become the most prevalent type.

For criminal cases involving cryptocurrency, there is an ongoing debate both in practice and theory: should the seized virtual currency be liquidated? This question already assumes a premise—that virtual currency has property value, particularly mainstream cryptocurrencies. Currently, some judicial practitioners still regard all virtual currencies merely as computer system data, a view clearly inconsistent with reality and legal principles. Therefore, our following discussion is based on the foundation that mainstream virtual currencies involved in cases possess property value.

Different investigative needs lead to different answers regarding this issue.

1. Virtual Currency as Evidence

In criminal cases, when evidence has property value but does not exist in fiat currency (tangible or intangible) form, it generally should not be liquidated.

Take theft as an example: If A steals one Bitcoin from B, courts face no legal obstacles in determining that A is guilty of theft. If the Bitcoin is seized, authorities need only return the confiscated Bitcoin to B. Even when assessing the amount involved in the crime, there's no need to liquidate the Bitcoin. In current practice, the purchase price paid by B is typically used as the basis for calculating the stolen amount (in accordance with the "victim shall not profit" principle, law enforcement should not consider any appreciation of Bitcoin—see “What Happens When Seized Cryptocurrency Appreciates or Depreciates?”). If B received the Bitcoin as a gift or mined it themselves, the market price at the time of the theft can generally be used to determine the case value.

All these procedures do not require actual liquidation of the Bitcoin because the ultimate disposition of the seized Bitcoin is its return to the victim (B).

2. Virtual Currency as Illegal Gains

In some cases, seized virtual currency does not need to be returned to victims (for instance, if the suspect has already sold it, or if there are no identifiable victims), and thus liquidation of the virtual currency should generally be considered.

In China’s criminal justice system, most virtual currency-related cases fall under economic or financial crimes, which typically involve fines. The amount of such fines is closely tied to the suspect/defendant’s illegal gains. This chain of reasoning necessitates converting the virtual currency into cash to accurately determine those gains.

More importantly, in cases where virtual currency constitutes illegal gains, its market price often determines whether the threshold for initiating prosecution is met. Given the extreme volatility of cryptocurrency prices across different periods, a coin might exceed the立案 threshold when reported by the victim—but by the time the case passes through public security, prosecution, and court stages, the value could drop to zero. In such scenarios, even if the suspect/defendant receives a lenient sentence, they are likely to feel unjustly treated—how can someone be convicted based on a digital asset now worth nothing? For this reason, when virtual currency represents illegal gains, it should be liquidated—and promptly so.

Of course, reality is complex. In some criminal cases, virtual currency may simultaneously serve as both evidence and illicit proceeds. In such instances, we recommend that judicial authorities prioritize liquidation after securing sufficient evidence. (Stablecoins like USDT or USDC may temporarily remain unliquidated.)

Additionally, another key factor to consider is whether the case has already been adjudicated by the court.

3. Disposal of Virtual Currency Before Court Judgment

Under Chinese law, courts are generally responsible for disposing of涉案 assets after issuing a judgment. Absent special circumstances, seized virtual currency should likewise be disposed of after the court renders its decision. However, exceptions to this principle do exist.

According to the *Procedures for Public Security Organs Handling Criminal Cases* (hereinafter referred to as the “Procedures”), assets with significant market fluctuations—such as stocks, bonds, and fund shares—may be legally auctioned or sold before judgment, provided the individual concerned applies or consents and approval is obtained from the chief official of a county-level public security organ. Two main controversies arise here:

First, virtual currency is not explicitly listed among the "stocks, bonds, fund shares, etc." mentioned in the Procedures. Whether the term "etc." allows for an expansive interpretation to include virtual currency remains unclear.

Second, the Procedures represent regulations issued solely by public security organs. Criminal proceedings, however, involve coordinated efforts and mutual oversight among public security, procuratorial, and judicial bodies. As a departmental regulation, the Procedures lack binding authority over prosecutors and courts. Can the Procedures therefore serve as a unified legal basis across all three branches—the so-called “judicial江湖”—for early disposal of virtual currency? This is questionable.

Regarding the first controversy, the principle of "no action without legal authorization" fundamentally constrains judicial agencies. Since virtual currency is not specifically enumerated in the Procedures, public security organs arguably lack the authority to dispose of it unilaterally. Yet the real dispute lies in whether the catch-all term "etc." can be interpreted broadly enough to encompass virtual currency—a matter still open to interpretation depending on one’s institutional perspective, with no uniform standard currently established.

As for the second controversy, although laws and judicial interpretations carry greater weight than departmental rules, unfortunately, neither existing laws nor judicial interpretations provide clear guidance on the disposal of涉案 property. The Supreme People's Court's interpretation of the Criminal Procedure Law stipulates that涉案 assets transferred with the case file, or those seized or impounded by the court, shall be handled by the court after the first-instance judgment becomes effective. But what if public security organs fail to transfer the virtual currency along with the case? Then the provisions of the SPC’s interpretation cannot apply. (For further analysis, see “At What Stage Should涉案 Cryptocurrency Be Disposed Of—by Police or Courts?”)

The above analysis explains the current inconsistency in how seized virtual currency is handled. As for solutions, only further clarification and refinement through departmental regulations and judicial interpretations—especially incorporating virtual currency into future legislation and judicial procedures—can resolve these issues.

4. Disposal of Virtual Currency After Court Judgment

Disposing of涉案 virtual currency after a court judgment is the most “orthodox” approach, with two common scenarios:

First, when the seized virtual currency consists of mainstream stablecoins. Due to their stable value, stablecoins experience virtually no fluctuation from立案 to final judgment. Thus, post-judgment disposal is logically sound (unless the currency must be returned to a victim).

Second, when a price appraisal or assessment has been conducted while the value of the virtual currency remains intact. Although the cryptocurrency itself hasn’t been liquidated, formal documentation exists that appears to authoritatively establish its value. Courts often directly adopt opinions from appraisal agencies, pricing institutions, or forensic auditors. However, it must be noted that, as a Web3.0 criminal defense lawyer, Attorney Liu believes that under current laws, regulations, and virtual currency policies in China, no organization or institution is permitted to provide pricing services for virtual currency transactions. Consequently, such third-party entities have no legal basis to assess or certify the value of virtual currency.

In summary, whether and when to liquidate涉案 virtual currency varies significantly across judicial practices. The root cause lies in the ambiguous legal and regulatory stance toward virtual currency: authorities hesitate to recognize its financial attributes while being unable to ignore its real-world value. In a sense, virtual currency represents a grassroots challenge by ordinary people to those in power.