If you have been in the crypto for a few years, Perpetual Futures trading is probably not something new. Its characteristics of high leverage, high risk, and high returns have become the focus of global investors. However, in mainland China, this type of trading is currently defined as "gambling" by some judicial authorities, linked to the "crime of opening a gambling den", which has sparked widespread controversy. Meanwhile, on a global scale, the regulatory frameworks for crypto contract trading are showing a trend of diversification.
During the defense of exchange Perpetual Futures for potential gambling charges, criminal lawyer Deng Xiaoyu compared the regulatory landscapes of major countries and regions. In this article, we will discuss the true nature of Perpetual Futures and its underlying logic to deconstruct the "gambling den" controversy in mainland China - is it financial innovation or an online gambling platform? Let's discuss.
Is Contract Trading a "Network Gambling Den"?
In mainland China, some judicial decisions classify crypto Perpetual Futures trading as a "gambling activity". The specific reasons were previously disclosed in the article 'Why Virtual Currency Exchange Contract Rebates May Constitute Opening a Gambling Den?', with many judicial authorities believing that:
- Virtual currency price fluctuations have characteristics of being unpredictable, random, and coincidental.
- Exchanges amplify speculative risks through high leverage, making them highly risky.
According to current policy regulations, "virtual currency Perpetual Futures trading" is considered an illegal financial activity. Although defenders argue that Perpetual Futures are similar to futures contract trading, courts insist that this model is significantly different - with no specified delivery time, being perpetual, trading 7x24 hours, extremely high leverage, and no physical or cash settlement. Players' trading through exchanges essentially resembles "betting on big or small, winning or losing". Therefore, it can be deemed as the "crime of opening a gambling den".
The "current policy regulations" mentioned by judicial authorities primarily refer to the "Notice on Further Preventing and Handling Risks of Virtual Currency Trading Speculation" issued by the central bank and ten other departments in September 2021, which explicitly stipulates that virtual currency-related business activities are illegal financial activities, including virtual currency derivative trading. This provides a basis for judicial practice. But would categorically labeling the complex Perpetual Futures trading as a "gambling den" be hasty? Let's examine a few questions:
1. The Definition of Crypto is Somewhat Blurry
Mainland China has not yet formed a clear legal framework for crypto's legal attributes. Related regulations, such as the 'Notice on Preventing Bitcoin Risks', 'Announcement on Preventing Token Issuance Financing Risks', and the 2021 notice, only emphasize that virtual currencies do not have legal tender or monetary status and are prohibited from circulating as currency. But is it a commodity? A security? Or something else? There is still no classification system.
In comparison, international regulatory frameworks are more detailed. The U.S. Commodity Futures Trading Commission (CFTC) has long classified Bit and Ethereum as "commodities", with derivatives regulated as futures. The EU's Market in Crypto-Assets Regulation (MiCA) is even more direct, treating crypto assets and derivatives as financial products. Such clear rules leave space for innovation, while mainland China's ambiguous classification might restrict industry development and deviate from global trends.
[The translation continues in the same manner for the rest of the text, maintaining the specified translations for specific terms.]United States: Divided Management, Each with Its Own Duties
The United States has a clear attitude towards perpetual contracts: they are derivatives, no different from futures and swaps. Bitcoin and Ethereum are identified as "commodities" by CFTC, and perpetual contracts based on them are managed by CFTC under the Commodity Exchange Act (CEA); if they involve crypto assets classified as "securities", they fall under SEC management.
- Commodity Futures Trading Commission (CFTC): Responsible for regulating derivatives of cryptocurrencies (such as Bitcoin, Ethereum) identified as "commodities". Perpetual contracts based on these assets are viewed as commodity derivatives, with no essential difference from traditional futures and options. Usually considered "swaps" or "futures", they must comply with the Commodity Exchange Act (CEA).
- Securities and Exchange Commission (SEC): If a cryptocurrency is deemed a "security", its derivatives (such as perpetual contracts based on that asset) are regulated by SEC, requiring compliance with Securities Act and Securities Exchange Act.
The regulatory approach in mainland China is quite different. Some courts define perpetual contracts as "gambling," possibly overlooking their financial attributes. Claiming that prices are "unpredictable" also deviates from global market data - Bitcoin prices have long been linked to the Nasdaq and Federal Reserve policies. This one-size-fits-all regulation might reduce the vitality of financial technology in China, appearing somewhat conservative compared to global innovation trends.
Mankun criminal lawyer wrote this article, calling for referencing global experiences and reconreconsidering the definition of perpetual contracts in light of Hong Kong's policy trends. For example, learning from the EU's MiCA layered regulation, treating perpetual contracts as financial instruments; or following the CFTC's commodity derivatives model, setting leverage limits and protecting investors. On the other hand, he also hopes to clarify the nature of perpetual contracts. While trading perpetual contracts under mainland China's strict regulation is indeed is indeed inappropriate, the issue is essentially about operating without a license, which can be evaluated as illegal business. Conversely, if perpetual contracts are considered gambling, then tens of thousands of contract trades would need to face administrative penalties for gambling participation, which is clearly not conducive to social governance.
