China’s Landmark Crypto Fraud Case Stirs Debate

In a significant legal first for China, a college student has been sentenced to over four years in prison for cryptocurrency fraud involving the creation and abrupt devaluation of a self-made token.

The case centres around Yang Qichao, who launched a virtual currency called Blockchain Future Force (BFF) on the BNB Chain in May 2022. Initially, Yang paired 300,000 BSC-USD with 630,000 BFF tokens, boosting the liquidity of his newly created cryptocurrency.

However, shortly after this initial liquidity increase, Yang withdrew the funds—a tactic known as “liquidity withdrawal.” This move led to a sharp depreciation in the value of BFF tokens, resulting in significant financial losses for investors.

The Victim’s Perspective

One of the investors, Mr. Luo, exchanged 50,000 BSC-USD for 85,316.72 BFF tokens just before Yang withdrew the liquidity. Consequently, Luo’s investment plummeted in value, leaving him with a fraction of his original investment.

Determined to recover his losses, Luo traced Yang through a mutual acquaintance on WeChat and demanded compensation. When Yang refused, Luo filed a police report, accusing Yang of defrauding him of over 300,000 yuan (approximately 50,000 USD).

Legal Proceedings

Following Luo’s complaint, authorities launched a criminal investigation, resulting in Yang’s arrest in November 2022. On February 2, 2024, a Henan court found Yang guilty of cryptocurrency fraud, sentencing him to four years and six months in prison and fining him 30,000 yuan.

This case marks the first instance of a criminal conviction for cryptocurrency fraud in China, a country where virtual assets are not legally recognized.

Defence and Controversy

Yang’s defence team argued that both parties were experienced in cryptocurrency trading and understood the inherent risks.

They claimed that the plaintiff, Luo, had not suffered actual losses since the value of BFF tokens increased due to higher liquidity after the incident, enabling Luo to redeem more USDT than initially invested.

Broader Implications

This landmark case has sparked considerable debate within China. The court’s decision to criminalize actions surrounding the release and subsequent liquidity withdrawal of a virtual currency highlights the country’s evolving stance on digital assets. Despite the lack of legal recognition for cryptocurrencies in China, the ruling underscores the potential for criminal liability in cases of perceived fraud and investor losses.

This case serves as a cautionary tale for both creators and investors in the cryptocurrency space. It emphasizes the need for due diligence and awareness of the legal landscape in different jurisdictions. It also illustrates the growing scrutiny and potential regulatory measures that could shape the future of digital currencies in China and beyond.

ABOUT THE AUTHOR See More

Arslan Butt

Index & Commodity Analyst

Arslan Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics. His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker. His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.

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