Author: Lawyer Liu Zhengyao Original Link: https://mp.weixin.qq.com/s/IG_anpufVhafKis1E3eNKw Disclaimer: This article is a reprint. Readers can obtain more information through the original link. If the author has any objection to the reprint format, please contact us and we will modify it according to the author's requirements. Reprinting is for information sharing only and does not constitute any investment advice, nor does it represent Wu Shuo's views and positions. Introduction: A "Coincidentally" Timely Guide In recent years, with the rapid development of blockchain technology and the continued high incidence of virtual currency-related crimes, the difficulties faced by Chinese judicial organs in handling virtual currency cases have become increasingly prominent. At the national level, my country has not issued unified rules for the disposal and realization of virtual currencies involved in cases. Currently, each province is basically "feeling its way across the river," and some provincial public security bureaus have already issued corresponding rules for the investigation and handling of virtual currency criminal cases. It is against this backdrop that the Shanghai High People's Court, on February 9, 2026, took the lead in publicly releasing the "Guidelines of the Shanghai High People's Court on Regulating the Enforcement of Online Virtual Property (Trial Implementation)" (hereinafter referred to as the "Guidelines") on its official website. This is one of the most systematic and detailed normative documents issued by a high people's court in China to date regarding online virtual property (especially virtual currency) at the level of civil enforcement, and it deserves in-depth interpretation. As a lawyer who has been deeply involved in the judicial disposal of virtual currency for many years, the author has long paid attention to and participated in practical research in this field. Today, the author will analyze in detail the content of the Shanghai High People's Court's "Guidelines" and what impact it will have on the judicial disposal of virtual currency cases nationwide in the future. 01 Background of the Shanghai High People's Court's Issuance of the "Guidelines" The first sentence of the "Guidelines" is: "To further regulate the work of people's courts in handling enforcement cases involving online virtual property," which is certainly an absolutely correct statement. However, the author also believes that Shanghai has a special background that urgently requires the High Court to express its opinion on the judicial disposal of virtual currency cases, namely, the large amount of virtual currency seized by courts at all levels in Shanghai that urgently needs to be disposed of and realized. 02 What are the highlights of the Guidelines? The most commendable aspect of the Guidelines is that they directly address the long-standing issues of technical security and safekeeping standards in previous judicial proceedings, especially by making substantial institutional arrangements regarding the seizure and safekeeping mechanisms for virtual currencies.(I) Establishment of the Cold Wallet Seizure Mechanism Article 15 of the "Guidelines" clearly stipulates that "when a people's court seizes virtual currency, it shall be equipped with a cold wallet," and that "the seized virtual currency shall be transferred from the holder's wallet, centralized exchange, or other address to a cold wallet specially established by the people's court for storage," and "in principle, it is prohibited to use the original holder's wallet or centralized exchange to seize virtual currency." This provision is highly technically targeted. Virtual currencies traded on centralized exchanges can have their involved accounts frozen through the exchange; strictly speaking, this applies to leading Chinese centralized exchanges (such as Easy and Binance), which have relatively close ties with mainland regulatory authorities. If the virtual currency is traded on a decentralized exchange, it can be frozen by seizing a cold wallet or the key. Previously, in practice, some judicial organs did not transfer the assets to independently managed cold wallets when seizing virtual currency, posing serious security risks. A cold wallet refers to a wallet where the private key is stored on an offline device and is not connected to the internet; its core advantage lies in isolating the risk of network attacks. The unified transfer of the virtual currency involved in the case to a dedicated cold wallet of the court not only technically prevents the possibility of remote theft of assets, but also institutionally establishes the judiciary's independent right to control the property involved in the case, preventing the original holder from transferring assets by using account permissions, and completely eliminating the institutional loophole of "seizure in name, control in person". (II) Supervision Mechanism of "Separation of Execution and Custody" Article 16 of the Guidelines further stipulates that when the court entrusts a third-party institution to assist in the custody of virtual currency, it must establish a working mechanism of "separation of execution and custody", "multiple people and multiple locks", and "mutual supervision". This mechanism is ingeniously designed. The so-called "separation of execution and custody" means that the execution behavior and the custody behavior are separated from each other, preventing the same entity from deciding on the disposal of assets and actually controlling the private key, thus blocking the space for rent-seeking from the mechanism. "Multiple people and multiple locks" draws on the management principle of dual authorization of financial institutions (generally called "multi-signature" in the field of encryption), ensuring that no single person can call the private key or mnemonic phrase alone, avoiding theft by the custodian. "Mutual supervision" requires that the parties involved in custody form a check and balance relationship to prevent collusion between insiders and outsiders. In the criminal defense cases involving virtual currencies handled by Attorney Liu's firm, some local judicial authorities and disposal companies signed disposal agreements with disposal fees as high as 35%. This means that of a virtual currency worth ten million yuan, only six million yuan was ultimately recovered after disposal, with the remaining three million yuan going to the disposal company as handling fees. Behind this astonishing figure lies the institutional cost of the previous lack of standardized oversight mechanisms.The "separation of enforcement and management" and "multiple people, multiple locks" mechanism established in the Guidelines is expected to reduce the space for corruption in the entrusted custody process from the source. Furthermore, Article 27 of the Guidelines specifically stipulates confidentiality obligations, explicitly stating that "enforcement personnel are strictly prohibited from storing private keys (or mnemonic phrases) on internet devices" and "the use of cold wallet devices that are not authorized by the People's Court, do not meet technical standards, or affect the security of virtual currencies is strictly prohibited." This elevates the secure custody of virtual currencies to a level of confidentiality equal to state secrets, demonstrating the drafters' profound understanding of the technical attributes of this special asset. 03 Shortcomings of the Guidelines: The "Paper Plan" Dilemma of Disposal However, in Attorney Liu's view, the provisions regarding disposal in the Guidelines are precisely the most questionable aspect of the entire document in terms of operability. Article 17 of the Guidelines stipulates that "after the online virtual property of the person subject to enforcement is seized, detained, or frozen, the People's Court shall promptly conduct auctions, sales, or take other enforcement measures as needed for handling the case." Article 19 allows the online virtual property operator to publish auction announcements on its system. Article 20 also allows courts to decide on direct asset liquidation, including methods such as "entrusting online trading platforms to repurchase or consign, or negotiating a discounted price between the parties." On the surface, this series of regulations seems to have constructed a relatively complete path to monetization. However, under the current regulatory framework in mainland China, this path faces fundamental legal obstacles. Since the issuance of the "Notice on Further Preventing and Handling Risks of Virtual Currency Trading and Speculation" ("9.24 Notice") in 2021, virtual currency-related business activities have been defined as illegal financial activities in my country. Neither natural persons, legal persons, nor unincorporated organizations, nor even state administrative organs or judicial organs, are allowed to conduct virtual currency-related business within my country. This regulation has led to difficulties for Chinese judicial organs in disposing of seized, sealed, and confiscated virtual currencies using traditional methods. On February 6th of this year, the People's Bank of China, the China Securities Regulatory Commission, and eight other departments jointly issued the "Notice on Further Preventing and Handling Risks Related to Virtual Currency" (hereinafter referred to as "Document No. 42"), which repealed the 2021 "9.24 Notice," but the definition of virtual currency-related business as illegal financial activities in mainland China remains unchanged. In other words, if a court publicly auctions Bitcoin or Ethereum within the territory, or entrusts a platform to repurchase USDT, it is essentially the court directly engaging in "fiat currency and virtual currency exchange business" within the territory, which directly conflicts with the "illegal financial activities" defined in Document No. 42.Because judicial authorities cannot directly conduct public auctions of virtual currencies in China, and the disposal of virtual currencies requires a certain level of expertise, they may choose to entrust professional third-party institutions to handle the process. However, even when entrusting a third-party institution to conduct the auction, a series of issues remain, including the auction venue, the identities of bidders, anti-money laundering, and counter-terrorism financing—issues that the "Guidelines" do not consider (or have avoided). Furthermore, if the virtual currencies held by the parties are stored on exchanges, since these exchanges have been shut down in China and their operations and management personnel have largely moved overseas, exchange accounts are not subject to the control of Chinese regulatory agencies like bank accounts. Therefore, it is impossible to enforce the transfer of virtual currencies through coercive means. In this situation, the so-called "entrusting operators to publish auction announcements (auction announcements and other information)" lacks a supporting platform; and in the "direct sale" aspect, "entrusting online trading platforms to repurchase" cannot find a compliant counterparty in China (stablecoin issuers like Tether or Circle are illegal or even suspected of criminal activity in China). Interestingly, in September 2025, the Baoshan District People's Court of Shanghai, under the guidance of the Shanghai High People's Court and with the cooperation of the Shanghai Public Security Bureau, successfully disposed of over 90,000 FIL coins using a "domestic entrustment, overseas disposal, and closed-loop repatriation" approach (see: "New Progress in Judicial Disposal of Virtual Currency in China: Shanghai High Court Announces Successful Disposal Case"). However, the "Guidelines" focus very little on this approach, concentrating mainly on the domestic auction and sale scheme, the latter of which has questionable operability. This information is certainly worth pondering. 04 Conclusion: Rules First, Practice Tests Overall, the "Guidelines" issued by the Shanghai High Court represent an important step forward for Chinese judicial organs in standardizing the enforcement of virtual currency cases. The Supreme People's Court has listed "disposal of virtual currency involved in cases" as a new situation and a new problem, requiring judicial organs to improve their disposal capabilities and refine rules. In the future, it is highly likely that a nationally unified disposal model, or even a disposal platform, will be formed. As a forefront of legal innovation in China, Shanghai's move will undoubtedly accumulate valuable local experience for the eventual promulgation of nationally unified rules. Its professional development—especially the establishment of a cold wallet custody mechanism and a "separation of enforcement and management" and "multiple people, multiple locks" supervision system—has real institutional value and fills a major loophole in the previous virtual currency custody process.However, the "auction + sale" blueprint outlined in the disposal section is extremely impractical in mainland China at a time when "Document No. 42" has just come into effect. Direct auctions and sales within China still face insurmountable legal obstacles. As the saying goes, "laws alone are not enough." The vitality of the "Guidelines" must ultimately be tested in practice. How Shanghai courts promote the actual realization of virtual currencies within the new regulatory framework, whether they will further improve the institutional connection for compliant disposal overseas, and whether this local exploration can promote the introduction of national-level rules are all important points worth continued attention. Let's see how effective the Shanghai courts are in practice—that will be the true test of these "Guidelines." [Wu Shuo]
China’s Virtual Currency Judicial Guidelines: A Double-Edged Sword for Crypto Markets
The recent issuance of comprehensive guidelines by Shanghai High Court regarding virtual currency judicial disposal represents a pivotal moment in China’s approach to digital assets. While establishing more sophisticated technical frameworks for handling seized cryptocurrencies, these regulations simultaneously underscore the fundamental tension between China’s judicial system and its restrictive regulatory environment toward virtual currencies.
Judicial Technical Framework: A Paradigm Shift
The most significant development in these guidelines is the establishment of a formal cold wallet seizure mechanism. Article 15 explicitly requires courts to transfer seized virtual currencies to dedicated cold wallets, prohibiting the use of original holder wallets or centralized exchanges for custody. This represents a major technical upgrade from previous practices where some judicial authorities maintained custody in less secure environments.
The accompanying “separation of execution and custody” mechanism with “multiple people and multiple locks” addresses the historical problem of excessive disposal fees—reportedly as high as 35% in some cases. By institutionalizing checks and balances, these guidelines aim to reduce corruption and asset depreciation during the judicial disposal process.
For the broader crypto market, this development indirectly validates industry-standard security practices. When judicial authorities implement multi-signature protocols and cold storage solutions at scale, it represents a form of institutional adoption of crypto-native security paradigms.
Regulatory Conundrum: The Impracticality of Domestic Disposal
While the seizure and custody frameworks are technically sophisticated, the disposal provisions face insurmountable legal obstacles under China’s current regulatory framework. The guidelines outline auction and sale mechanisms that would require courts to directly engage in “virtual currency-related business activities”—explicitly defined as illegal financial activities under “Document No. 42.”
This creates a fundamental contradiction: the guidelines establish a robust framework for managing seized assets but provide no viable path for their monetization within China’s borders. The mention of a successful FIL coin disposal using a “domestic entrustment, overseas disposal, and closed-loop repatriation” approach suggests that practical implementation may rely on extrajudicial channels not formally acknowledged in the guidelines.
Market Implications: Selective Impact and Increased Sophistication
For token prices, these guidelines are likely to have a selective rather than uniform impact:
- Tokens with significant illicit trading volumes in China may experience short-term pressure as enforcement mechanisms become more sophisticated
- Security-focused tokens and infrastructure providers may benefit from the implicit validation of their technologies
- The market may increasingly differentiate between jurisdictions based on their legal frameworks for virtual asset disposal
The guidelines also signal increasing sophistication among Chinese regulators in dealing with cryptographic assets. The detailed technical specifications suggest that Chinese judicial authorities are developing in-house expertise that could potentially be leveraged for future regulatory frameworks beyond pure enforcement.
Strategic Outlook: Navigating China’s Crypto Paradox
For investors, these guidelines create both risks and opportunities:
Risks:
– Heightened regulatory scrutiny could accelerate the exodus of crypto businesses from China
– The concentration of seized assets in judicial cold wallets could become attractive targets for sophisticated attacks
– The practical gap between guidelines and implementation creates uncertainty for crypto holders with exposure to Chinese jurisdictions
Opportunities:
– Growing demand for specialized crypto forensics and security services
– Development of compliant cross-border asset disposal solutions
– Potential for technological innovation in multi-party computation and secure asset management
The Shanghai High Court’s guidelines represent a classic example of China’s approach to crypto regulation: establishing sophisticated technical frameworks while maintaining fundamental restrictions on commercial activity. This paradox creates both challenges and opportunities for market participants.
Ultimately, these guidelines are best viewed as an incremental step in China’s evolving approach to virtual assets—one that acknowledges their value and technical complexity while maintaining restrictive boundaries. The practical implementation challenges highlighted in the analysis suggest that the market may have more time to adapt than initially apparent, but the direction of travel is increasingly clear: China is developing increasingly sophisticated mechanisms to control and manage virtual currencies within its jurisdictional boundaries.
As these guidelines are tested in practice, they will likely serve as a model for other jurisdictions developing similar frameworks, potentially shaping global standards for virtual asset seizure and disposal across the judicial landscape.