Title: The Controversial Case of Yang Qichao and the Virtual Currency Scam
On June 6th, a scam involving virtual currency that was reported by The Paper News has sparked widespread attention in China. The protagonist is a young “post-00s” college student named Yang Qichao, who issued a virtual currency called BFF on a public chain overseas and quickly withdrew liquidity, resulting in investor Luo’s loss of 50,000 USDT coins. In the first instance, Yang Qichao was convicted of fraud and sentenced to 4 years and 6 months in prison, as well as a fine of 30,000 yuan. However, in the second instance, Yang Qichao’s defense lawyer argued for innocence, stating that Yang Qichao’s actions were in compliance with platform rules, and Luo should have been fully aware of the risks of investing in virtual currency.
As the first criminal case involving the issuance of virtual currency, this case has not only sparked intense debate at the legal level but also triggered widespread discussions in society. The high risk and regulatory uncertainty of the virtual currency market have once again become the focus of public attention.
Although a conclusion has not yet been reached, the arguments presented by various parties in this case represent the current societal, legal, and regulatory perspectives on participation in virtual currency projects. Points of View from Prosecution and Defense
According to news reports, Lawyer Honglin summarized the core content and main arguments of this case. The prosecution’s argument: a carefully planned scam
The prosecution insists that Yang Qichao created a false BFF coin with the same name as the Future Dynamics virtual currency, which led Luo to recharge 50,000 USDT coins and then quickly withdraw funds, essentially defrauding Luo of his money. Although virtual currency is not considered legal tender in China, its trading and economic benefits on international platforms exhibit property attributes, and the prosecution believes they can be converted into RMB for sentencing purposes. The defense’s argument: legitimate arbitrage behavior
The defense lawyer stated that the virtual currency issued by Yang Qichao has a unique and unchangeable contract address, complying with technical specifications for virtual currency trading, and does not constitute counterfeit currency. Additionally, the defense argued that Yang Qichao’s withdrawal of liquidity after issuing the virtual currency was a legitimate arbitrage behavior that did not violate platform rules. The defense also pointed out that Luo, as an experienced player, should have been fully aware of the risks of virtual currency trading; his participation was a high-risk speculative activity for which he should take responsibility for his investment decisions. Furthermore, the defense emphasized that under current laws and regulations, virtual currency investment activities are not protected by law, and both parties’ transactions constitute illegal financial activities that should not be protected by law. Victim’s perspective: an innocent investor
Luo insists that he was deceived, as he purchased BFF coins from Yang Qichao the moment he added liquidity, but Yang Qichao’s swift withdrawal led to a significant devaluation of the virtual currency he held. He reported a loss of 50,000 USDT coins (equivalent to over 300,000 yuan) and believes that Yang Qichao defrauded him of his money through false advertising and rapid withdrawal. In court, he stated that he bought BFF coins through a mobile trading platform in a parking lot in Nanyang High-tech Zone, hoping to profit from early investments. He denied using scripts to automatically purchase BFF coins, claiming he made manual purchases and emphasizing that he is a victim. Speculation and Arbitrage in the Virtual Currency Market
The virtual currency market has always been full of speculative and arbitrage opportunities. From the early days of Bitcoin to the present, various forms of virtual currencies have emerged, attracting a large number of investors and speculators. The high volatility and relative lack of regulation of virtual currencies have led to various arbitrage activities and potential scams in the market.
The controversy sparked by the Yang Qichao case actually reflects a common phenomenon in the virtual currency market – rapid arbitrage behavior. While his defense lawyer attempted to explain his actions as legitimate arbitrage operations, for most ordinary investors, this rapid withdrawal behavior appears more like a “pump and dump” scam.
In the virtual currency trading market, arbitrage activities come in various forms, some of which are legitimate market operations, while others operate in the gray area of law and morality. Some common virtual currency arbitrage methods include:
– Brick-and-mortar arbitrage: exploiting price differences between different exchanges to buy low and sell high.
– Triangular arbitrage: using price differences between different trading pairs on the same exchange to profit without risk.
– Liquidity mining: providing funds to decentralized exchanges (such as Uniswap, SushiSwap) liquidity pools to earn transaction fees and platform rewards. This method typically involves high returns and high risks.
– Lending arbitrage: borrowing virtual currency at low rates on one platform and depositing or pledging at high rates on another platform to profit from interest rate differentials.
– Spot-futures arbitrage: exploiting price differences between the spot market and futures market for arbitrage. For example, buying Bitcoin in the spot market while shorting the same amount of Bitcoin in the futures market to lock in risk-free profits.
– Arbitrage robots: using automated programs to execute high-frequency trades at the millisecond level to capture small market price differences. This method requires a high level of technical expertise and capital.
– Liquidity withdrawal arbitrage: adding liquidity to decentralized exchanges and quickly withdrawing it, profiting from changes in the token ratio in the liquidity pool. Such behavior is sometimes referred to as a “rug pull” and is controversial both ethically and legally.
In such a market environment, how can investors protect themselves from similar behaviors? Moreover, how can legitimate arbitrage be distinguished from illegal fraud? These questions not only relate to the final judgment of the Yang Qichao case but also to the future development of the virtual currency market. The Perspective of Lawyer Mankun
Currently, the legal status of virtual currencies in many countries and regions is not yet clear, with different countries and regions having varying regulatory policies. Some countries have established relatively clear legal frameworks, while others are still exploring. For example, the United States and the European Union have stricter regulations on virtual currencies, requiring virtual currency exchanges and related companies to comply with anti-money laundering and anti-terrorist financing laws and regulations. In 2019, the U.S. SEC filed a lawsuit against the Telegram project, ultimately ruling its ICO illegal and requiring it to refund investor funds. In China, virtual currency trading and Initial Coin Offerings (ICOs) are completely banned, and the Chinese government has issued several notices and announcements clarifying that virtual currencies do not have legal tender status, and investment and trading activities are not protected by law.
Furthermore, the virtual currency market continues to see new plays and innovations, from Decentralized Finance (DeFi) to Non-Fungible Tokens (NFTs), all of which are attracting significant funds and investors’ attention. However, these emerging areas also come with significant risks and uncertainties. For example, the frequent hacking attacks and smart contract vulnerabilities exploited in DeFi projects, as well as the price bubbles and hype in the NFT market, demonstrate the high complexity and volatility of the virtual currency market.
The high risk and volatility of the virtual currency market are not only reflected in market fluctuations and technical vulnerabilities but also in the prevalence of fraud and illegal fundraising activities. Despite repeated warnings from governments and regulatory agencies, the high returns of the virtual currency market continue to attract many uninformed investors.
In mainland China, the number of criminal cases involving virtual currencies is increasing, highlighting the legal and investment risks in the virtual currency market. For example, in 2018, the Shenzhen Public Security Bureau uncovered a virtual currency “cloud mining” scam involving hundreds of millions of yuan. Criminals used the high returns of virtual currencies to lure investors into buying so-called “mining machines” in a Ponzi scheme. In the same year, the Hangzhou police also uncovered a case of illegal fundraising using virtual currencies, involving over 1 billion yuan, and thousands of investors were affected.
However, when courts handle such cases, there is often no clear and uniform set of judgment rules, which poses a significant challenge to grassroots judicial workers and parties involved in the cases. For example, the Supreme People’s Court has clearly stated in guiding cases that it does not support the exchange of virtual currencies for legal tender, but in the case of Yang Qichao, the first instance court recognized the property attributes of virtual currencies, indicating inconsistency in judicial practice.
As a legal practitioner in the Web3 industry, the most absurd aspect of this case is: if investors make money in the virtual currency market, it is due to their own abilities and insights; but if they incur losses, resorting to national power to seek redress through reporting is somewhat unreasonable.
The high risk and volatility of the virtual currency market dictate that investors must have sufficient knowledge and judgment to protect themselves, rather than attributing their investment decisions to others or seeking national protection for their losses. Therefore, enhancing investor education and risk awareness is the fundamental way to avoid similar disputes and losses.
As a new financial instrument, virtual currencies have enormous potential but must operate within a legal framework to truly realize their value. We call on relevant authorities to promptly establish clearer regulations on virtual currency trading and clearer court judgment rules to protect investors’ interests and promote the healthy development of the industry.
