[Direct answer]It is both illegal and unprotected. According to current regulatory standards, virtual currency-related business activities (such as exchange, trading as a central counterparty, pricing services, and token issuance financing) are considered illegal financial activities. Civil legal acts involving virtual currency investment transactions that violate public order and good customs are invalid, and the resulting losses shall be borne by the participants themselves. Activities such as currency exchange, fundraising, money laundering, and assisting in transferring funds using virtual currencies may violate criminal law. In short, the money in the cryptocurrency market is not protected by the law.

I. Problem Background and Typical Scenarios

Typical scenarios of virtual currency disputes include: suing for compensation after losing money in cryptocurrency trading entrusted to others, recovering funds from platforms that cannot withdraw cash due to unjust enrichment, projects involved in "arbitrage" disappearing, being involved in money laundering chains by exchanging USDT, and disputes over the purchase and sale of mining machines and "mining" hosting. A common misunderstanding among participants is that "not being punished" equates to "legality", and "technical neutrality" is mistaken for "exemption from liability".

II. Key points of contention

First, regulatory classification. Virtual currencies do not have the same legal status as fiat currencies, and related business activities are illegal financial activities. Foreign exchanges providing services to domestic residents are also in violation of regulations. Second, civil effectiveness. Investment transactions that violate public order and good customs are invalid, and losses must be borne by the investor himself/herself - this is the guiding standard of the arbitrator. Third, criminal red lines. There are risks of illegal business operations when exchanging virtual currencies across borders, fund-raising fraud and illegal absorption of public deposits when attracting funds with high interest "financial management" products, and aiding and abetting and money laundering risks when lending payment accounts to help transfer funds. Fourth, case identification. There are differences in the classification of occasional personal transactions and commercial exchanges and token issuance. Cases involving multiple victims and criminal elements should be referred to the relevant authorities for priority handling.

III. Professional analysis by Henglue Lawyers

The actual judgment of the referee, with two public cases as examples: In one case, an investor transferred a total of over 1.05 million yuan to a trustee for Tether transactions, but suffered losses. The investor sued the trustee for compensation. The court ruled that participating in virtual currency investment transactions involves legal risks, and relevant civil legal acts violate public order and good customs and are invalid. The losses should be borne by the investor himself. As a person with full civil capacity, he should be aware of the transaction risks, and the lawsuit was dismissed. In another case, an investor, introduced by a netizen, invested 60,000 yuan in Tether. When the platform could not withdraw the funds, the investor sued the platform merchant for unjust enrichment. The court ruled that virtual currency-related business activities are illegal financial activities, investment transactions are not protected by law, and the consequences must be borne by the investor himself. The same ruling was made. The common judgment logic of the two cases: First, the illegal nature of the behavior is determined—this is not an ordinary dispute of "who is at fault compensates whom", but a determination that the behavior itself is not protected; Second, the investor bears the risks himself—as a person with full civil capacity, he is responsible for the consequences of his participation in illegal financial activities. It's hard to overturn the argument that "I didn't know" or "the other party promised guaranteed returns". Three judgments for those involved in virtual currency disputes: First, the chances of winning a loss-claim case are extremely low, and the litigation costs are likely to be sunk. It's a rational choice to accept a stop-loss; Second, if the platform runs away or the project party absconds with the funds, it's better to first check whether there are criminal clues (such as fund-raising and fraud) and report the case to the police in time. The channels for recovering the losses are with the public security authorities; Third, participants in currency exchange and payment collection should immediately assess their own criminal risks. Roles such as lending accounts and assisting in transfers may be identified as aiding and abetting in money laundering, and they should proactively clarify their roles and take stop-loss actions in advance. The courts in Beijing have a stable position on the classification of virtual currency-related cases. The first question they ask is not "can I sue", but "what role do I play in this chain".

IV. Practical suggestions and legal basis

First, self-assessment of roles: Investment, acting as a nominal holder, currency exchange, and assisting in transferring funds—the risk levels of these different roles vary significantly. Second, preserving evidence: Save chat records, transaction records, and screenshots of platform pages for future reference. Third, choosing a path: Expect low success rates for civil claims; prioritize reporting cases involving multiple victims or criminal elements. Fourth, isolating risks: Immediately stop engaging in new transactions and promptly explain the situation to lenders regarding borrowed accounts. Main legal basis: - Article 8 (Principles of Public Order and Good Morals) and Article 153 (Nullity of Civil Legal Acts Contrary to Public Order and Good Morals) of the Civil Code of the People's Republic of China (effective since 2021); - Notice from the People's Bank of China and other departments on Further Preventing and Handling the Risks of Speculation in Virtual Currency Transactions (effective since 2021); - Articles 176, 192, and 287-2 of the Criminal Law of the People's Republic of China; - Specific applications shall be subject to the currently effective laws and regulatory provisions.

5. Henglu Law Firm's Advice

The legal reality of virtual currencies can be summed up in one sentence: Take responsibility for the risks before entering the market, and the law will not rescue you after something goes wrong. For those who have already entered the market, it is first necessary to clarify their roles and exposures. Criminal risks will always be dealt with before civil claims. Those involved in virtual currency disputes and financial compliance can seek assistance throughFinancial capital and cross-border transactions involving foreign entitiesThe service provides a comprehensive solution, which includes references for dealing with criminal risks involving money and reporting cases to protect one's rights and interestsCriminal defense and criminal case filingFor reference, you can check the section related to financial transactions and asset recovery and damage mitigationCreditor's rights and debts, and enforcement casesFor reference, you can check the compliance review of enterprises' cryptocurrency-related business operationsBusiness and contract disputes in enterprisesFor the plate, the design of case solutions can be combined with itSpecialised legal services板块。

VI. Frequently Asked Questions

Q1: Is it illegal for individuals to buy virtual currencies?

The relevant transaction activities are not protected by law. Civil legal acts that violate public order and good customs are invalid, and the losses shall be borne by the parties themselves. Criminal risks will be dealt with separately.

Q2: If I lose money on cryptocurrency trading through a proxy, can I sue for compensation?

Public court rulings show that such claims are often dismissed. The court holds that investors bear the risk of investment transactions themselves, and the chances of winning the case are extremely slim.

Q3: Is it illegal to exchange USDT for foreign currency?

Converting virtual currencies into fiat currencies across borders may constitute crimes such as illegal business operations, and it is one of the scenarios with the highest criminal risks.

Q4: What should I do if the platform goes bankrupt and disappears?

First, assess whether it involves criminal offenses such as fund-raising fraud and report the case to the police. The channels for recovering the stolen money and mitigating the losses are under the jurisdiction of the public security authorities, and the prospects for civil litigation are not optimistic.

Q5: Is there any risk in lending out the receiving account to help transfer coins?

You may be suspected of crimes such as aiding and abetting, money laundering, etc. Stop immediately and seek professional advice. If necessary, actively explain the situation to the authorities.

The above content is based on the judicial practice in the Beijing area. The facts of individual cases and the jurisdiction of the court may affect the conclusions. Welcome to consult Henglu Law Firm about specific situations.

VII. Relevant public cases (for reference only, not handled by our firm)

The following cases are all sourced from the official websites of courts at all levels, judicial organs, and authoritative media, and have been publicly disclosed. They are unrelated to the cases handled by our firm. They are provided solely for reference in understanding relevant adjudication rules and do not constitute opinions on specific cases.

[Case No.]The case number has not been made public.
[Trial Court]The People's Court of a certain place (reported by China Court Online)
[Judicial Summary]Investors transferred a total of over 1.05 million yuan to the trustee and made cash payments for Tether transactions, but suffered losses. The court determined that participating in virtual currency investment and trading activities involves legal risks and that civil legal acts that violate public order and good customs are invalid. The resulting losses should be borne by the investors themselves. As fully capable civil subjects, they should be aware of the legal risks of such transactions. Therefore, the court dismissed their lawsuit.
[Source]China Court Network (Trustee sued for millions in losses from investing in virtual currencies; court rules that losses must be borne by the investor himself) (2024-08)

[Case Number]The case number has not been made public.
[Trial Court]The People's Court of Changle District, Fuzhou City, Fujian Province
[Judicial Summary]An investor, after being introduced by a netizen, invested 60,000 yuan in Tether. When the platform failed to withdraw the funds, the investor sued the platform merchant for unjust enrichment, demanding the return of the investment. The court ruled that virtual currency-related business activities constitute illegal financial activities, and investment transactions are not protected by law. The consequences should be borne by the investor himself, and the lawsuit was dismissed.
[Source]China News Service, Fujian (Court reminder: Investment and trading in virtual currencies are not protected by law) (2024-10)

If you are facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the evidence materials, to avoid missing the statutory time limit. →Financial capital legal services·Beijing Henglue Law Firm

Disclaimer: This article is compiled based on current laws and regulations and publicly available adjudication rules, and is for general reference only. It does not constitute a formal legal opinion on specific cases. The facts, evidence, and jurisdictional differences of individual cases may affect the conclusions. In the event of a dispute, please consult a practicing lawyer promptly.