Virtual goods are protected; the spirit of contracts must be followed

[2] Compiled from: People's Court Daily
 
Case review
Xiaolin and Dapeng are a couple. They reached an agreement via WeChat that Dapeng would help Xiaolin trade Bitcoin for profit and financial management.

 
 

From December 24, 2019, to March 30, 2020
Xiao Lin transferred a total of 195,000 yuan to Da Peng in multiple installments for investment in purchasing Bitcoin.
 
January 10, 2020; January 18, 2020; January 29, 2020; February 14, 2020; March 12, 2020.
In WeChat chats with Xiao Lin, Da Peng sent screenshots of his contract account and fiat account balances, as well as Bitcoin price trend charts, to Xiao Lin.
 
Additionally, during Da Peng's trading period, Xiao Lin frequently logged into the Huobi investment account on his own to check the relevant situation.

 
 

It was not until April 5 of this year that Xiao Lin realized something was wrong. He sent a WeChat message to Da Peng demanding an explanation, only to learn that Da Peng had not purchased Bitcoin spot but Bitcoin futures, and all the money in the account had disappeared. In response, Da Peng explained that the money had been entirely transferred as margin, and if the margin was insufficient later, he would lose everything.
 
On April 24, 2020, Xiao Lin filed a lawsuit with the Haicang Court. Xiao Lin argued that Da Peng, without authorization, used his investment funds as margin to purchase Bitcoin futures and concealed the fact of losses, constituting a fundamental breach of contract and a serious violation of the principle of good faith, resulting in financial losses. Therefore, Xiao Lin had the right to demand Da Peng return the funds and compensate for the losses.
 
Dapeng believes that the decline in Bitcoin prices is a normal investment risk, not caused by his intentional or gross negligence; moreover, Xiaolin logged into the Huobi investment account multiple times during the trading period to check the account status, so he should have been fully aware of the actual trading situation but raised no objections, which should be considered as consent. Therefore, Xiaolin's claim for the return of investment losses and interest has no legal basis.
 
 
Relevant legal provisions
Contract Law of the People's Republic of China, Article 60
The parties shall fully perform their obligations as agreed. The parties shall follow the principle of good faith and perform the obligations of notification, assistance, and confidentiality in accordance with the nature, purpose, and trading practices of the contract.
 
Contract Law of the People's Republic of China, Article 406
In a gratuitous entrustment contract, if the trustee causes losses to the principal due to intentional or gross negligence, the principal may claim compensation for the losses. If the trustee exceeds the authority and causes losses to the principal, compensation shall be paid.
 
 
[1] Court Opinion
The court held that, based on the WeChat chat records between the two parties, Xiaolin and Dapeng orally agreed to purchase Bitcoin spot, and the words "futures" or "margin" did not appear in their earlier conversations. It was not until April 5, 2020, that Dapeng admitted to using the funds entrusted by Xiaolin for wealth management as margin to purchase Bitcoin futures without Xiaolin's knowledge.
 
According to common sense, the risks of investing in Bitcoin spot and Bitcoin futures are vastly different. As a trustee, Dapeng should have been diligent and conscientious, handling the entrusted matters according to the client's instructions and reporting the status. In fact, without Xiaolin's consent, he unilaterally changed the investment purpose of the funds entrusted by Xiaolin, which constitutes a breach of contract. Therefore, Dapeng should bear the responsibility for the total loss of Xiaolin's investment funds.
 
Even if Xiaolin logged into the Huobi investment account multiple times during Dapeng's trading period, it does not necessarily mean that he was aware of Dapeng using the investment funds as margin to purchase Bitcoin futures. Moreover, Xiaolin's act of logging into the account on his own does not relieve Dapeng of his duty as a trustee to be diligent and conscientious and to report in a timely manner.
 
In summary, Xiaolin's claim for compensation for investment losses and interest is supported by facts and legal basis and should be upheld.
 
After the first-instance judgment, Dapeng, dissatisfied with the outcome, filed an appeal. The second-instance court ruled to uphold the original judgment.
 
 
[1] The author's perspective
It is noteworthy that Bitcoin should be protected by law but does not have the legal status of a currency.
 
The People's Bank of China and other ministries have issued documents such as the "Notice on Preventing Bitcoin Risks" (2013) and the "Announcement on Preventing Risks of Token Issuance Financing" (2017), which do not deny the property attributes of Bitcoin as a commodity. Chinese laws and administrative regulations also do not prohibit the holding of Bitcoin. The "Notice on Preventing Bitcoin Risks" further states, "By nature, Bitcoin should be a specific virtual commodity." Therefore, Bitcoin possesses the attributes of virtual property and virtual goods and should be protected by law. However, documents like the "Notice" deny the legal status of such "virtual currencies" as currency, meaning Bitcoin and other "virtual currencies" cannot and should not circulate or be used as currency in the market.
 
The author reminds investors to invest rationally, reasonably control risks, and protect their property safety.