Bitcoin quantitative trading: is it protected by law

When it comes to financial management involving digital assets such as Bitcoin, one has to mention quantitative transactions. If you are a holder or enthusiast of digital assets, then you must have heard or participated in some activities that promote quantitative trading. The subject matter of this type of quantitative transaction entrusted financing is mostly digital assets such as Bitcoin. In legal practice, are such entrusted financing activities protected by law? How does the court view such financial management activities? We will take several recent cases in Beijing courts as examples to illustrate the above issues, hoping to help readers who encounter similar problems in practice.

Case file

Trial court: People’s Court of Fangshan District, Beijing

Case number: (2019) Beijing 0111 Minchu No. 21457

Proceedings: Disputes over private entrusted financial management contracts

Trial procedure: first instance

Judgment time: August 24, 2020

1. Introduction to the case

Software A is a mobile phone application operated by a data service company. On January 15, 2019, Yan delivered 5 bitcoins to the receiving address designated by a data service company through a real-name registered account on the A software, and entrusted a The data service company conducts quantitative transaction financial management of Bitcoin. According to the contract, the custodial BTC should be redeemed on July 19, 2019. However, around June 10, 2019, the plaintiff discovered that the company had suddenly lost contact, so he sued the court and requested: 1. Request to repay the virtual BTC delivered to the defendant by the plaintiff. The total property is 5 BTC (equivalent to RMB 400,000); 2. The defendant shall bear the litigation costs in this case.

2. Basic situation of entrusted financial management agreement

2. Entrusted matters: Party A entrusts Party B to manage 5 BTC (hereinafter referred to as “Entrusted Goods”). Entrustment method: 1. Party A deposits the entrusted products to be entrusted for management into the custody account of the exchange designated by Party B. 2. Party A authorizes Party B to manage the consigned products by means of contract, spot, variety exchange, etc. 3. The entrustment period: 1 year. 4. Entrustment begins: The entrusted product is transferred to the designated exchange account, which means that Party A has delivered the entrusted product to Party B for management.

3. Transaction Agreement: 1. Party A must keep all transaction information and related transaction information of Party B strictly confidential, and shall not disclose it to any third party without authorization. Party B must keep Party A’s information strictly confidential and shall not disclose it to any third party without authorization. 2. Party A has the right to know the income status of entrusted products. 3. Party B must manage according to the specific management requirements stipulated in this agreement. If the actual situation of the entrustment is different from the management requirements, Party B shall communicate with Party A in a timely manner, and continue the management after Party A confirms.

4. Income distribution and risk burden:

1. Performance and income distribution: The calculation method is based on the number of entrusted products. As of the liquidation date, Party B shall withdraw 20% of the management income based on the annualized income of the entrusted products.

2. Management fee, subscription fee, redemption fee. The management fee is 2% of the asset management amount and is collected in advance. Management fee = asset management amount × 2%. No subscription fee. The redemption fee is 1% of the redemption amount, and there is no redemption fee for liquidation on the settlement day. Redemption fee = Redemption amount × 1%.

3. Risk burden and stop loss. (1) Due to irresistible factors or changes in national laws and regulations, the actual implementation of this agreement cannot be continued, this agreement will be automatically terminated, and Party B shall not bear any legal responsibility. Both parties will distribute according to the profit distribution clauses according to the asset status in the account on the date of termination of the agreement. (Refer to relevant laws and regulations for the definition of irresistible factors). (2) Party B promises that, except for force majeure, the loss during the agreement period will be controlled within 15% of the initial assets. (3) During the agreement period, when the loss of the entrusted product is within 15% of the initial capital, Party B shall not bear any responsibility; during the agreement period, when the loss of the entrusted product reaches 15% (inclusive) of the initial capital, Party B shall immediately stop trading, and The party has the right to terminate this agreement at any time.

4. Redemption: According to the entrusted management service regulations, Party A can redeem on the open day. The redemption open day is the first week of each quarter, and Party A must submit a redemption application on the 14th day before the redemption day.

5. Liquidation: According to the entrusted management service charter, both parties A and B will conduct liquidation and distribution in accordance with the performance and income distribution agreement on the liquidation day.

5. Liability for breach of contract.

1. After the entrusted goods arrive in the account, if Party B misappropriates the entrusted goods in breach of contract, it shall return the embezzled funds and compensate Party A for all losses suffered as a result, and Party A has the right to terminate this agreement at any time.

2. In the case that the agreed conditions have been met, if losses are caused by Party A, Party A shall bear the losses on its own.

3. If Party A fails to transfer Party B’s due income to Party B in accordance with the agreement, it shall pay Party B a daily penalty of three thousandths of the amount of untransferred funds from the day after the agreed time limit expires. .

3. Court opinion

This court believes that a contract established in accordance with the law is protected by law. The parties shall fully perform their obligations in accordance with the agreement. In this case, the “Entrusted Management Agreement” signed by Yan and a data service company is the true intention of both parties. The content does not violate the mandatory provisions of laws and administrative regulations and should be legal and effective.

According to the People’s Bank of China and Other Departments on Preventing Bitcoin Risks issued jointly by the People’s Bank of China, the Ministry of Industry and Information Technology, the China Banking Regulatory Commission, the China Securities Regulatory Commission, and the China Insurance Regulatory Commission on December 3, 2013. Notice and on September 4, 2017, the People’s Bank of China, the Central Cyberspace Affairs Office, the Ministry of Industry and Information Technology, the State Administration for Industry and Commerce, the China Banking Regulatory Commission, the China Securities Regulatory Commission, and the China Insurance Regulatory Commission issued the “Announcement on Preventing Token Issuance Financing Risks”, confirming Bitcoin It does not have the same legal status as currency, does not have monetary attributes such as legal compensation and compulsion, and cannot and should not be used as currency in the market. However, Bitcoin is a specific virtual commodity, and China’s current laws, Administrative regulations have not denied the possession of Bitcoin, so Bitcoin has the attributes of virtual property and virtual goods and should be protected by law.

If the company fails to appear in court after being legally summoned by this court, it shall be deemed to have waived the corresponding litigation rights, and this court shall hear the case in accordance with the law and make a judgment in absentia.

The court ruled: a data service company limited to return Yan’s 5 bitcoins within ten days from the effective date of this judgment. The case acceptance fee and the announcement fee (subject to the amount of the announcement fee invoice) shall be borne by a data service company.

4. Chain bill review

The above-mentioned case is one of several recent cases involving Bitcoin quantitative transaction and financial management by Beijing Fangshan District People’s Court. The basic facts, judgment ideas, and court opinions of the other several cases are roughly the same as the above-mentioned cases. The judgment ideas in these cases reflect the Beijing court’s basic views on disputes involving digital asset entrusted financial management contracts involving bitcoin and other digital assets. The details are as follows:

1. The cause of this type of case is “contract disputes over entrusted wealth management” or “disputes over private entrusted wealth management contracts”.

The higher-level cause of the “contract disputes over entrusted wealth management” is “contract disputes”, which includes “financial entrusted wealth management contract disputes” and “private entrusted wealth management contract disputes.”

Entrusted financial management means that the principal entrusts its funds, securities and other assets to the trustee, and the trustee invests the assets in the futures, securities and other trading markets or manages it through other financial forms, and the income obtained is distributed by both parties in accordance with the agreement. The economic activity in which the trustee collects agency fees.

Among them, “financial entrusted financial management”, also known as financial institution entrusted financial management, refers to a form of entrusted financial management in which customers hand over funds to financial institutions and the financial institution acts as the trustee. In my country, financial institutions engaged in entrusted wealth management business mainly include five categories: commercial banks, securities companies, trust companies, insurance companies, and fund companies.

“Private entrusted wealth management”, also known as non-financial institution entrusted wealth management, refers to the entrusted wealth management in which the client transfers assets to non-financial institutions or natural persons such as asset management companies, investment consulting companies, general enterprises and institutions, and non-financial institutions as trustees form.

This case belongs to “private entrusted financial management.”

2. The entrusted financial management contract (quantitative transaction contract) with Bitcoin as the subject matter is established in accordance with the law and is protected by law.

In this case, both the plaintiff’s appeals during the lawsuit and the court’s judgment all regarded Bitcoin as the subject matter of return. The court’s view is also very clear. The “Entrusted Management Agreement” involved in the case does not violate the mandatory provisions of laws and administrative regulations and should be legal and effective.

Therefore, a quantitative transaction contract with digital assets such as Bitcoin as the subject matter is regarded as a private entrusted financial management contract in law. As long as the content of the contract does not violate the mandatory provisions of laws and administrative regulations, it is generally valid.

The validity of the contract means that both parties to the contract should fully perform their obligations in accordance with the agreement. If one party fails to perform its obligations under the contract, the other party has the right to require it to perform and bear the responsibility for breach of contract.

3. Are the legal properties of Bitcoin and its trading behavior legal?

In determining the legal attributes of Bitcoin, in addition to this case, civil judgments (2019) Jing 0111 Min Chu No. 19452, (2019) Jing 0111 Min Chu No. 21966 Civil Judgments, and (2019) Jing 0111 Min Chu No. 21131 Civil Judgments In the case, the court held that:

As a virtual commodity, Bitcoin itself does not contain inherent value, but Bitcoin holders exercise possession, use, profit, and disposal of Bitcoin through the information recorded in the “public accounting book” (database) that is distributed and confirmed on the entire network. It does not violate the law, so Bitcoin should belong to the transaction object in contract law and have civil interests that should be protected by law.

4. What are the precautions for investors when conducting quantitative trading and financial management?

(1) Sign a written contract, the content of the agreement should be specific and complete

The four Bitcoin quantitative transaction dispute cases submitted in this article all have written contracts. In the contract, the specific entrustment matters (entrustment method, entrustment period, etc.), income distribution, redemption clauses, etc. are clearly stipulated. This is the factual basis for the observant party to require the breaching party to bear responsibility after a dispute arises.

(2) Set the stop loss line

The stop loss line is also very important. In practice, Bitcoin quantitative transaction financial management generally includes two forms. One is that investors directly deliver Bitcoin to the quantitative organization for operation, thereby transferring the possession of Bitcoin. The other is that the quantitative trading agency operates directly in the investor’s account, and the quantitative agency does not have the right to withdraw the currency and does not transfer the possession of Bitcoin.

The corresponding stop-loss line is stipulated in the contract, for example, the ratio of the stop-loss line is specified. Within the range of the ratio, the quantification agency is not responsible. If the stop-loss line is exceeded, the quantification agency should stop operating. This is not only conducive to safeguarding the interests of investors, but also to the protection of quantitative institutions.

(3) Performance and income distribution

This should be the core clause in the contract, and it is also the most concerned issue of both parties. For example, how the performance is calculated, how the income is distributed, etc.

(4) Withdrawal mechanism

That is, how to redeem, the timing of redemption, how to redeem, and what the conditions are, which need to be determined in written form.

(5) Assignment of responsibilities for breach of contract

The establishment of liability for breach of contract is more inclined to protect investors. Because under normal circumstances, investors need to deliver their own bitcoins to the quantitative agency and lose control of the bitcoin. In this case, if the quantitative agency breaches the contract, how to bear the liability for breach of contract and the form of liability for breach of contract What is, the subject and content of compensation, if determined in written form, will be conducive to the protection of investors.


Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

Leave a Reply