Steal Bitcoin in China, Get Charged With Theft: A New Marker for Crypto Regulation

In July 2023, in an office in Qingdao, Shandong province, a man surnamed Peng was setting up a new digital wallet. To move a Bitcoin wallet, he needed a sequence of 12 English words. Known as a mnemonic or seed phrase, it functions as a kind of password. Whoever has the words controls the wallet.

As Peng created the new wallet, he wrote the 12 words down on paper. He apparently did not notice a man surnamed Zhang beside him stealing a glance. The moment was brief, but prosecutors said Zhang memorized 11 of the words and the first letter of the 12th. That night, he returned home and sat down at his computer. Mnemonic phrases are drawn from a fixed list of 2,048 English words, so identifying the final word was not difficult once he knew its first letter.

Zhang transferred 107 Bitcoin from Peng's wallet to another one. He then sold part of the holdings through a conversion website and pocketed more than 660,000 yuan, or about $92,000. Based on Bitcoin's price at the time, that was a relatively small sum. It is unclear whether he sold only part of the tokens or accepted a discount because the trade took place in China's underground market, where such transactions are illegal.

By the time Peng discovered the theft, it was too late. Police opened an investigation and prosecutors filed charges. On April 28, 2025, the Licang District People's Court in Qingdao convicted Zhang of theft, sentenced him to 10 years and 9 months in prison, and fined him 100,000 yuan. Zhang appealed, but the Qingdao Intermediate People's Court rejected the appeal on Nov. 10, 2025. More than a year has now passed since the first ruling.

Why revive a year-old ruling now

On June 7, China's Supreme People's Procuratorate posted the case on its official account. This was more than a routine case summary. The authorities presented the ruling as a model case, and the headline carried political weight, saying it would "deeply study and implement Xi Jinping Thought on the Rule of Law" and handle every case efficiently. The previous six months help explain why.

On Dec. 13, 2025, Procuratorial Daily, the official publication of the Supreme People's Procuratorate, ran a commentary titled "Building Diverse Judicial Disposal Pathways for Virtual Currency Involved in Criminal Cases." It said investigative authorities have seized a substantial amount of crypto over the years, but the legal basis for disposing of those assets remains unclear. The commentary proposed a three-track framework: sale, destruction and return.

Then on Feb. 6, 2026, eight Chinese agencies, including the People's Bank of China, jointly issued a document with a blunt message. It reaffirmed that all business activities related to virtual currency are illegal financial activity. It also brought newly emerging stablecoins under supervision, effectively widening the scope of the trading ban.

In May, China's Supreme People's Court said it would conduct in-depth research on judicial responses to new types of financial cases involving virtual currency and similar assets. The move signaled an effort to impose a unified standard after lower courts issued inconsistent rulings.

That was followed by the June 7 posting of the Qingdao case as a model example. It can be seen as the closing step in a six-month effort by China's judicial authorities to build a more coherent approach.

Banned, but still protected

The prosecutor who handled the Qingdao case highlighted one key line in the post: "Current policy denies virtual currency the status of legal tender, but does not deny its nature as property."

The first part is familiar. Virtual currencies are not recognized as a means of payment like the yuan or the dollar. People cannot pay for a restaurant meal with Bitcoin in China, and they cannot open an exchange and run it as a business. The newer element is the recognition of Bitcoin as property. If someone steals that Bitcoin, the act can constitute theft.

Consider endangered wildlife products whose trade is banned. Buying and selling tiger skins or ivory is itself illegal. But stealing those items is a separate crime of theft. The illegality of trade and the protection of property rights can operate on separate tracks. That is similar to the logic China appears to be applying to Bitcoin.

There is also a practical reason for this approach. Chinese authorities have seized a significant amount of virtual currency in investigations into fraud, money laundering and gambling. Even under the three-track model proposed by Procuratorial Daily — sale, destruction or return — each option creates problems. Selling the assets clashes with the principle that trading is banned. Holding them leaves authorities exposed to price volatility. Returning them raises the question of who is legally entitled to receive them.

Clearly recognizing crypto as property provides the legal basis for all three options. An asset must first be recognized as property before it can be sold, destroyed or returned. The proposition that virtual currency's "property nature" is not denied is the starting point for how China may handle seized crypto assets in the future.

Two paths to institutionalization, and China's choice

At first glance, stronger punishment and tighter regulation might seem likely to provoke resistance. Yet the crypto industry has often welcomed the arrival of laws and formal rules around the world. That is not because the sector is unusually tolerant of strict oversight. Strong penalties and strict regulation generally become possible only after the law defines what crypto is. For the industry, that has often been seen as a path toward legal recognition.

That was also the case when the US Internal Revenue Service classified Bitcoin as property rather than currency in 2014. The decision came with capital-gains tax consequences. Even so, the industry took it as an early sign that Bitcoin had entered a formal property category. The same pattern appeared later when the European Union adopted the Markets in Crypto-Assets, or MiCA, framework, and when Japan revised its Payment Services Act to require exchange licenses. The logic is straightforward: if moving into the open is possible, the industry is willing to accept heavier obligations.

China is taking a different route. While other countries have used institutionalization to bring trading and business activity into the legal system, China has first moved to bring property rights into the open. Even within the broad idea of institutionalization, the starting point can differ.

China has at times chased the US, matched it and in some areas moved ahead in next-generation technologies such as artificial intelligence, robotics and autonomous driving. But it is taking a different path in digital assets. It appears to have its own reasons, including checking dollar dominance, maintaining capital controls and promoting the digital yuan.

Still, the faster technology develops, the greater the cost of separating trading from property rights. The Qingdao ruling's reappearance a year later as a model case under Xi Jinping Thought on the Rule of Law suggests the judiciary sees a need to refine that dual-track structure further. The question now is where, and when, China will make its next move on digital assets.

Kim Oi-hyun, adjunct professor at Woosuk University

Contributed to Hankyung Business