Cryptocurrency derivatives have become increasingly popular in the trading world, with one of the most well-known forms being perpetual contracts. These contracts allow traders to speculate on the prices of assets like Bitcoin or Ethereum without actually owning the asset. Unlike traditional futures contracts, perpetual contracts do not have an expiration date and are kept at spot prices through mechanisms such as funding rates. Traders have the option to take long or short positions, often with leverage of up to 100x, making perpetual contracts highly speculative and controversial within the Chinese legal system.
A recent court ruling in China has equated trading perpetual contracts to gambling. The Supreme People’s Court has defined gambling as an activity based on chance, and Chinese courts have applied this principle to cases involving perpetual contracts. Just like in gambling, where one bets on the outcome of a dice roll, traders betting on the direction of asset prices in perpetual contracts are seen as engaging in speculative gambling. The high volatility and leverage involved in perpetual contracts, along with strict liquidation rules, further support this interpretation.
In a landmark case in 2024, the Shanghai Songjiang court ruled that while owning virtual currency is not illegal and is recognized as valuable property, engaging in speculative trading contracts is prohibited under the China Civil Code. This ruling follows a similar decision in 2021 involving the BKEX platform, where operators offering perpetual contracts with leverage of up to 1000x were found guilty of facilitating disguised gambling. Another offshore exchange operated in Shenzhen was also penalized for conducting illegal business activities, despite claims that it did not impact financial markets.
China has had strict regulations on cryptocurrency trading since 2017, banning domestic trading and later outlawing overseas exchanges catering to Chinese clients. The government’s Futures Trading Management Ordinance also prohibits unauthorized futures trading, including perpetual contracts. These regulations effectively prevent the legal operation of perpetual contracts in China, leaving traders without legal recourse in case of losses and risking violations of foreign exchange laws through cross-border transactions.
While China takes a hard line approach to perpetual contracts, other jurisdictions approach them through financial law. In the United Kingdom, perpetual contracts are considered derivatives and only qualified investors are allowed to trade them. Hong Kong, on the other hand, permits retail crypto investments but does not allow derivatives trading. China’s strict regulations aim to protect consumers and maintain financial stability, making it one of the most stringent jurisdictions for cryptocurrency trading.