The recent approval of ETH ETFs has sparked renewed optimism in the crypto market. Exchanges are launching new token offerings, projects are sharing updates, and investment groups are buzzing with activity. Yet, many investors still find it increasingly difficult to profit—especially since the launch of BTC ETFs. With institutions like BlackRock channeling traditional capital primarily into Bitcoin, most altcoins held by retail investors haven’t seen significant inflows. Without new capital, altcoin markets often devolve into zero-sum, player-versus-player (PvP) dynamics.
Where there are winners, there are also losers. Some investors who’ve suffered losses may turn to friends or colleagues for loans, hoping to recoup their capital through high-risk bets. However, borrowing or lending within the crypto space—especially involving digital assets like USDT or ETH—comes with serious legal risks that most people overlook.
This article explores the legal gray areas surrounding crypto-related lending, focusing on key court rulings and practical implications for both lenders and borrowers.
The Hidden Dangers of Lending Cryptocurrency
In the Web3 world, stablecoins like USDT and USDC are often treated as hard currency. They’re used for trading margin, investing in early-stage projects, and even cross-border payments. As a result, many informal loans in crypto communities are settled in digital assets rather than fiat.
But from a legal standpoint, lending cryptocurrency is not the same as lending money—and it may not be protected by law at all.
1. Crypto Loans May Not Be Recognized by Courts
Case Reference: (2023) Hunan 04 Civil Final No. 3214
In this case, one friend lent another 2,000 USDT via Binance to cover margin requirements for a futures trade. After the position was liquidated, the borrower refused to repay. The lender sued—but the court dismissed the case.
Why? Because under China’s "Notice on Further Preventing and Disposing of Virtual Currency Trading Speculation Risks" (commonly known as the 924 Notice), activities involving virtual currency transactions that violate public order and good customs are not protected by civil law. The court ruled that disputes arising from such activities do not fall within the scope of civil litigation, and therefore dismissed the case outright.
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Similar rulings have emerged across provinces. For example, in (2023) Yunnan 01 Civil Final No. 2322, Kunming courts also refused to hear a case involving USDT repayment, citing lack of jurisdiction over crypto-related civil disputes.
This trend reflects a growing judicial reluctance to intervene in crypto lending—especially after the 2021 crackdown. However, it's not uniform.
Courts in Shanghai, Beijing, Hangzhou, and Xiamen have taken a more balanced approach. In cases like (2023) Shanghai Minhang No. 10422 and (2022) Beijing No. 01 Civil Final No. 5972, judges not only accepted the lawsuits but also ruled in favor of plaintiffs seeking return of their digital assets.
Key Insight: Jurisdiction matters. Where you file a case could determine whether your claim is heard—or dismissed without review.
2. Sending Crypto ≠ Delivering a Loan
Case Reference: (2020) Fujian 0203 Civil No. 21651
Here, a plaintiff signed a personal loan agreement to lend 10 million RMB to a defendant—but instead of transferring cash, they bought ETH equivalent to that amount and sent it to the borrower’s wallet.
The court rejected the claim entirely.
Why? Because virtual currencies like ETH are not legal tender. They lack legal parity with fiat money and cannot serve as valid loan collateral under Chinese contract law. Therefore, sending ETH does not constitute delivery of a loan, and the contract was deemed invalid.
Moreover, exchanging fiat for crypto (or vice versa) violates regulatory prohibitions on crypto-fiat conversion—a rule designed to prevent financial system disruption. As such, the court found the transaction violated public order and social ethics, rendering the entire agreement null.
This precedent has been echoed elsewhere—such as in Henan’s (2020) Nanyang No. 1599 case—where courts similarly invalidated contracts based on crypto-for-fiat exchanges.
Even if you have a signed agreement, if the “loan” is paid in crypto, the contract may never have legally existed.
3. Repaying Loans in Crypto Is Also Risky
You might think: If I can’t lend in crypto, can I at least repay a fiat loan using crypto?
The answer is likely no.
In Beijing’s (2021) Xicheng No. 40526 case, a defendant tried to settle a debt by transferring cryptocurrency. The court ruled this act invalid, reinforcing the principle that crypto cannot legally substitute for monetary obligations.
When Investment Turns Into Debt: The Borrower’s Trap
Beyond direct lending, another common scenario involves borrowing money to invest in crypto projects or trading strategies—such as futures, staking, or quantitative bots.
Many treat crypto trading as full-time work and accept funds from friends or online contacts for managed investments. These arrangements often start as informal partnerships or委托 (entrusted management), but when losses occur, tensions rise.
How a “Investment” Becomes a “Loan”
Consider this real-world example:
- Investor A gives money to Trader B to manage their crypto portfolio.
- No formal contract exists—just chat logs and bank transfers.
- After significant losses, Investor A pressures Trader B to sign an IOU.
- When repayment fails, Investor A sues for loan recovery.
In Beijing’s (2022) Fengtai No. 21153 case, courts accepted the IOU as proof of debt, despite evidence suggesting a prior investment relationship. The defendant lost because written loan documentation outweighed informal communication.
Conversely, in another recent case I advised on, our client successfully defended against a similar lawsuit by presenting extensive WeChat records, Binance deposit logs, trade history, and loss reports—proving it was a 委托理财 (entrusted investment) arrangement, not a loan.
👉 Learn how to structure investment agreements to avoid accidental liability.
Critical Takeaway: Never sign a promissory note out of guilt or social pressure—even if you caused losses. Doing so can transform a shared-risk investment into a personal debt obligation.
For deeper insights into these risks, see our related article: “What Are the Legal Risks of Entrusting Someone to Invest in Cryptocurrency?”
Can You Recover Lost Crypto Through “Unjust Enrichment”?
If a court invalidates a crypto loan or repayment, can the sender recover their assets under unjust enrichment laws?
Theoretically, yes—if one party gains something without legal basis while the other suffers loss.
But in practice?
- Filing is hard: Some courts refuse to accept cases involving crypto.
- Execution is harder: Even with a favorable judgment, tracking and seizing digital assets across wallets is extremely difficult.
- Jurisdictional strategy is crucial: Choosing the right court could mean the difference between recovery and total loss.
Frequently Asked Questions
Q1: Is lending USDT legally enforceable?
Not necessarily. While some courts recognize crypto disputes, many dismiss them outright under financial regulations. Enforcement depends heavily on jurisdiction and how the transaction is structured.
Q2: Can I write a contract to make crypto loans valid?
Even with a contract, if it involves exchanging fiat for crypto or uses digital assets as loan collateral, it may be deemed invalid due to violations of public policy and financial regulations.
Q3: What should I do if someone owes me USDT?
First, assess your location and local laws. Then gather all evidence: messages, transaction hashes, wallet addresses. Consider consulting a lawyer familiar with blockchain disputes—especially if large sums are involved.
Q4: Can I sue someone for not returning my crypto?
Possibly—but success varies by region. Courts in Shanghai and Beijing are more open to hearing such cases than those in Hunan or Yunnan.
Q5: Is investing in crypto with someone else’s money illegal?
Not inherently—but misrepresenting returns or failing to disclose risks can lead to fraud allegations. Always clarify roles: investor vs lender, profit-sharing vs fixed return.
Q6: How can I protect myself when lending or borrowing in crypto?
Avoid informal deals. Use clear agreements specifying intent (investment vs loan), risk allocation, and dispute resolution methods—even if not fully enforceable, they help establish facts in court.
Final Thoughts
Crypto blurs traditional financial lines—but the law hasn’t caught up. What feels like a simple favor among friends can become a legal nightmare when markets turn.
Whether you're lending USDT to help a friend cover margin or managing funds for others, understand this:
A single IOU can shift responsibility from shared risk to full liability.
Protect yourself with documentation, avoid emotional decisions, and remember: in the eyes of many courts, crypto isn’t cash—and treating it as such could cost you everything.
👉 Stay ahead of regulatory changes and secure your digital future today.