Shanghai Court Dismisses Cryptocurrency Investment Claim as Legal Risks for Investors Rise

A Shanghai court has dismissed a claim from an investor who lost 1.05 million RMB in virtual currency trading. The ruling held the investor solely responsible for the loss, citing that virtual currency has no legal status equivalent to fiat currency. The court emphasized that virtual currency-related activities are classified as illegal financial activities under Chinese law.

The investor, Ms. Wu, was lured into a cryptocurrency trading app after watching a live-streaming financial anchor. After being locked out of the platform and unable to withdraw her assets, she sued the defendant, Mr. He, for compensation. The court rejected her claim, ruling that the transaction violated public order and good customs, resulting in an invalid civil act.

Regulatory scrutiny of virtual currency has intensified in China, with the People’s Bank of China reaffirming prohibitive policies in a notice issued on February 6. This decision reflects a broader trend where jurisdictions impose restrictions on cryptocurrency activities, emphasizing compliance with public financial order.

Why Did This Happen?

The court’s decision underscores the legal ambiguity surrounding virtual currency transactions. The ruling explicitly cited China’s Civil Code, which states that virtual currency has no legal status equivalent to fiat currency. This reinforces the idea that virtual currency-related activities are considered illegal financial activities, violating public order.

The court also noted that the investor’s actions were conducted on an unregulated trading platform. As a result, the transaction was deemed invalid under Chinese law, leading to the rejection of her claim for compensation.

How Do These Legal Decisions Affect Investors?

The Shanghai ruling serves as a cautionary tale for investors engaging in virtual currency transactions. If an investment activity violates regulatory rules, investors may bear the full financial losses. The court explicitly stated that Ms. Wu must accept the consequences of her participation in an unregulated and illegal financial activity.

This case aligns with broader regulatory trends in China and globally. Authorities increasingly view virtual currency transactions as high-risk and potentially harmful to public financial order. In the U.S., for instance, regulatory bodies are also focusing on the legal and compliance risks associated with virtual currency investments.

What Are Analysts Watching Next?

The regulatory environment for virtual currency is evolving rapidly. In 2026, venture capitalists and investors are expected to place greater emphasis on managing legal and regulatory risks. Factors such as fragmented compliance regimes, geopolitical considerations, and high-stakes litigation will shape investment strategies.

Regulatory bodies, including the European Union and the U.S., are introducing or strengthening laws to govern emerging technologies like AI and virtual currency. These developments may increase compliance costs and affect syndication strategies for venture capital firms.

Investors are advised to stay informed about the legal status of virtual currency in their jurisdictions. As seen in this case, engaging in unregulated financial activities can lead to substantial and unrecoverable losses.