A second Chinese court has ruled that crypto lending is outside the protection of the country's legal system. According to the Nanchang People's Court, an individual known as Mr. Ming lent 80,000 Tether to Mr. Gang for stablecoin trading.

The loan was to be repaid in six months. Mr. Gang defaulted, leading Mr. Ming to sue in court.

Legal Requirements for Action

The Nanchang People's Court's landmark decision stated that Mr. Ming needed to prove that Tether is a legally issued fiat currency to bring a necessary cause of action for judicial relief, citing China's crypto ban legislation, reports Cointelegraph.

Since Mr. Ming could not provide sufficient proof, the court ruled that the lawsuit did not fall within the appropriate scope of civil litigation. Mr. Ming's subsequent appeal was also dismissed.

The presiding judge emphasized the legal risks of virtual currency investment and trading activities. Any investments in virtual currencies and related derivatives that violate public order and good customs will result in invalid civil legal actions. Furthermore, any resulting losses shall be borne by the investors or entities involved, Coinstats reported.

Precedents Set by Chinese Courts and Implications for Borrowers, Lenders

Cryptocurrencies have been banned in China since late 2021 due to environmental concerns and a lack of surveillance. This move has raised questions about the legality and future of crypto-related activities within the country's borders.

The Nanchang People's Court ruling further reinforces the stance of Chinese authorities regarding crypto lending. By affirming that such activities lie outside legal protection, the court sends a strong message to those involved in crypto transactions.

Borrowers who default on crypto loans may face limited means of judicial relief, as observed in the case of Mr. Gang. On the other hand, lenders should exercise caution and consider the potential risks associated with lending in the crypto space.

The recent ruling by the Nanchang People's Court follows a similar decision made by the Changzhou Zhonglu People's Court earlier this year. In that case, a $10 million Bitcoin lending agreement was invalidated due to the lender's inability to seek judicial relief.

Regulatory Environment and Oversight

China's ban on cryptocurrencies reflects the government's concern over environmental impacts and the need for greater surveillance in the digital asset space. The consecutive court judgments highlight the challenges individuals and entities involved in crypto lending in China face.

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