A friend who does not understand crypto trading heard that you had made several trades and earned some money, so they transferred funds to you and asked you to trade on their behalf. When the market was doing well, the conversation was about how much had been made; when the market fell, the account lost more than half its value, and the original trust began to crack.
The other party demands the return of the entire principal. You explain that the money was indeed used to buy coins, that the market was simply unfavorable, and that investment inherently carries risk. But the other party does not accept this, and even says: "The money was transferred to you, and now it has been lost. If you do not compensate me, I will call the police and say you committed fraud." The money is already lost, and the friendship may be over. What is even more worrying is this: you were merely helping a friend trade crypto, so how could you suddenly be suspected of fraud?
Whether you need to compensate for losses incurred in trading crypto on a friend's behalf, and whether the conduct constitutes fraud, are two distinct legal questions. The former depends on the trading relationship between the parties, the actual operations, and the cause of the losses; the latter requires further examination of the constitutive elements of a crime, such as whether there was deceptive conduct and an intent to illegally possess.
The mere fact that crypto trading resulted in a loss does not mean the operator must compensate the entire principal; nor does the mere fact that the money did enter a trading platform mean that one bears absolutely no liability.
01 If you lose money trading crypto on a friend's behalf, must you compensate the principal?
Not necessarily.
After a dispute arises, the most important step is to characterize the legal relationship at the time the money was initially transferred: when the friend transferred the money, was it for you to invest on their behalf, was it a loan to you, or had both parties intended from the outset to contribute funds jointly and share the risks together?
These types of legal relationships may all appear as "a friend transferred a sum of money," but the rights and obligations are not the same.
If, at the time of the transfer, the recipient issued a loan note or an IOU—whether to gain trust or for any other reason—then in legal terms the relationship between the parties may be characterized as a lending relationship, and the lender generally has the right to demand repayment of the principal under that lending relationship. If the parties did in fact entrust investment, the determination must be made in light of arrangements concerning capital contribution, profit distribution, and risk bearing. If it was merely a friend entrusting you to buy and sell virtual assets on their behalf, then the entrustment relationship and the legal validity of the related transactions are also involved.
In reality, many arrangements among friends for trading crypto on one another's behalf are not covered by a formal contract. Perhaps there was only a WeChat message saying "help me trade," followed by a transfer of funds. How profits would be distributed, who would bear losses, whether futures contracts could be opened, and whether leverage was permitted were all left unclear in advance.Once a dispute arises, courts often need to examine chat records, transfer remarks, trading accounts, profit settlements, and the actual course of operations to determine the parties' true trading arrangement.
But there is another issue that is easily overlooked: even if it can be proven that an entrustment relationship for crypto trading existed between the parties, that does not mean the relevant entrustment contract is necessarily valid.
On February 6, 2026, the People's Bank of China and seven other departments issued the Notice on Further Preventing and Addressing Risks Relating to Virtual Currencies and Other Matters, which continues to make clear that virtual currencies do not have the same legal status as legal tender and that conducting virtual currency-related business activities within China constitutes illegal financial activity. The Notice also provides that where any entity or individual invests in virtual currencies and related financial products in violation of public order and good morals, the relevant civil juristic act is void, and any losses arising therefrom shall be borne by the investor itself. Therefore, in disputes in mainland China involving entrusted investment in virtual currencies, the general rules applicable to lawful entrusted wealth management cannot simply be applied; rather, the nature of the transaction and the validity of the contract should first be examined, and the issues of return of property and allocation of losses should then be further determined.
For investment losses arising solely from market price fluctuations, an investor's demand that the person operating the account on its behalf compensate the principal in full may not necessarily be supported by the court.
However, if the person operating the account on another's behalf changes the investment method without authorization, conceals the true trading situation, or does not use the funds in accordance with the agreement at all, the legal assessment may be different.
02 Why do courts reach different judgments when both cases involve helping others trade cryptocurrencies at a loss?
In judicial practice, different outcomes do indeed exist.
In March 2026, a Shandong court published a dispute over entrusted investment in virtual currencies. Liu, through the introduction of his friend Zhang, entrusted Zhang to purchase a certain virtual currency. At the beginning of the investment, the platform showed daily returns, but soon afterward the platform could no longer be used normally, and the person in charge was also suspected of a criminal offense. Liu believed that since the money had been given to Zhang for investment and could no longer be recovered, Zhang should return it, and therefore sued Zhang in court. The court held that the entrusted contract established between the parties for virtual currency investment was void. Zhang had not profited from the entrusted act, and the losses suffered by Liu arose mainly from the risks of participating in the relevant virtual currency investment activities.
Ultimately, the court dismissed Liu's claim requesting that Zhang return the investment funds. This case shows that where a friend helps operate an investment and the investment ultimately suffers a loss, it does not automatically mean that the friend must bear all the losses on the investor's behalf.
However, another case produced a different outcome. In June 2026, the Shandong High People's Court published "Shandong Court Case [2026] No. 281," in which Wang and Zhao were likewise friends. In 2023, Zhao introduced a virtual currency investment project to Wang, and the two discussed the price, profits, and operating method via WeChat. Wang subsequently transferred RMB 72,500 to Zhao and entrusted Zhao to register an account and purchase virtual currencies. Zhao used the funds to purchase virtual currencies, but the platform later ceased operations and Wang's investment funds could not be recovered, so Wang sued in court. The court determined that the virtual currency entrusted investment contract between the parties was void, and also found that both parties were at fault for the losses.
In particular, Wang knew that virtual currency investment involved relatively high risks but still chose to participate, and should bear primary responsibility; Zhao, as the person actually carrying out the operations, knew or should have known of the compliance risks of the relevant activities but still accepted the entrustment, and was also at fault to a certain extent.
Ultimately, the court determined in its discretion that the investor Wang should bear 80% of the losses itself, and Zhao, who carried out the operations on Wang's behalf, should bear 20%. Both cases involved entrusting a friend to trade cryptocurrencies and both involved investment losses; why were the outcomes different?
The key is not whether the parties were friends, nor merely whether the funds entered a trading platform, but rather how the court determines the validity of the contract, the actual operating conduct, the causes of the losses, and the fault of both parties. This also serves as a reminder to those who trade cryptocurrencies on others' behalf: one cannot simply assume that, as long as the funds were actually used for investment, a loss will necessarily have nothing to do with oneself.
Of course, the 80% and 20% figures are merely the allocation of liability in the above individual case, and are not a general compensation ratio for disputes over entrusted investment in virtual currencies. Specific cases should still be determined in light of the facts and current laws and policies.
03 If a friend reports me to the police for fraud, will the public security authorities open a case?
For many people who help friends trade crypto, the greater concern, compared with losing money, is that the other party will report them to the police. This is especially so when a friend has explicitly said, "If you don't repay the money, I will go to the police station and accuse you of fraud," at which point the person involved inevitably becomes anxious: I only suffered an investment loss, so will I really be treated as having committed fraud?
It must first be made clear here that reporting a matter to the police does not equal case filing, and case filing does not equal a final finding that a crime has been constituted.
Under Article 112 of the Criminal Procedure Law, public security authorities shall review materials such as reports, accusations and tip-offs within their jurisdiction, and shall open a case only when they believe there are facts of a crime that require criminal liability to be pursued. Determining the crime of fraud does not depend solely on whether the investor suffered a loss or whether the operator returned the money.
Under Article 266 of the Criminal Law and the relevant rules for determining fraud offenses, it is also necessary to examine whether the actor had the purpose of illegal possession, whether the actor used deceptive means such as fabricating facts or concealing the truth to cause the other party to dispose of property based on a mistaken understanding, and whether this thereby caused property loss.
For example, the parties expressly agreed from the outset to purchase a certain virtual asset, the investor knew the relevant risks, the funds did in fact enter a trading account, there are genuine purchase and sale records, and the loss ultimately resulted from a decline in the market. In such a case, the trading records, the flow of funds and the communications between the parties are all important evidence for determining the nature of the matter. The operator cannot be directly found to have committed fraud merely because of the ultimate loss or a refusal to compensate in full.
Conversely, however, if the other party claimed they would help a friend purchase BTC but in fact never made any investment, and instead repeatedly demanded additional funds by forging trading screenshots, fabricating returns and other means, and used the payments for personal consumption, repayment of debts or other unauthorized purposes, it is necessary to further examine whether there was a purpose of illegal possession and deceptive conduct.
There are also situations where the funds did enter a virtual asset trading platform, but this does not mean there is necessarily no criminal risk.
If the actor merely used a small number of genuine transactions to create a false appearance of investment, or knew that the so-called project had no basis for normal operation yet still obtained other people's funds by fabricating returns, concealing material facts and other means, the fact that some investment activity genuinely occurred does not automatically rule out the possibility of fraud.
Therefore, to determine the boundary between an ordinary investment dispute and the crime of fraud, it is not enough to look only at whether money was ultimately lost; the conduct before and after the delivery of funds must be examined together.
04 If we agreed on spot purchases but the operator secretly opened futures contracts, will liability differ?
Yes. This is a situation particularly worth noting in disputes over entrusted virtual asset trading.
Suppose a friend originally only asked the operator to purchase BTC spot, and did not agree to leveraged trading. The operator, however, believed that contract trading would generate profits faster, and therefore transferred the funds into a contract account without consent and used relatively high leverage. Ultimately, the market suddenly fluctuated, the account was subject to forced liquidation, and the principal suffered substantial losses. After a dispute arose, the operator explained: "I also just wanted to earn a bit more; I did not expect the market to suddenly reverse." Such an explanation may not necessarily be sufficient to resolve the liability issue.
This is because there are clear differences in the risk structure between spot trading and high-leverage contract trading. The investor's willingness to bear the risk of a decline in coin price does not mean that the investor has authorized the operator to bear the risk of high-leverage liquidation.
Article 929 of the Civil Code provides for the liability of the entrusted party under a valid entrustment contract, including fault-based liability in compensated entrustment, liability for intent or gross negligence in uncompensated entrustment, and liability for losses caused by exceeding authority.
However, entrusted investment in virtual currency may involve contract invalidity, and the general rules on entrustment contracts cannot be directly and mechanically applied to all cases of trading coins on behalf of others. The return of property and fault-based liability after the relevant contract is invalid still need to be determined in light of Article 157 of the Civil Code and the specific circumstances of the case.
But one point cannot be ignored: unauthorized changes to the investment purpose and a joint decision by both parties to participate in high-risk trading must be distinguished as a matter of law. If the investor clearly authorized contract trading, clearly understood the leverage risk, and continuously kept informed of changes in the account, then the determination of fault-based liability is not the same as where the operator opened contracts without authorization without the investor's knowledge at all.
Likewise, if the original agreement was to operate only one particular account, but the entrusted party privately transferred assets to other accounts or wallets and cannot explain the reason for the transfer and where the funds went, the dispute may further involve the issue of unauthorized disposal of assets.
Therefore, a person helping a friend trade coins especially cannot ignore the scope of authorization. Whether the parties agreed that contracts could be opened, whether funds could be transferred, and whether re-entrusting others to operate was permitted may all become important facts for allocating fault-based liability in the future.
05 What should I do now that I have already been asked to pay compensation or even been reported to the police?
If a friend has already demanded compensation or even stated that they have reported the matter to the police, the most important thing is not to rush to argue about who is right and who is wrong, but to reconstruct the entire transaction process as clearly as possible as soon as possible.
First, find the original agreement.
How did the two parties initially discuss it? Did the friend explicitly request the purchase of a certain virtual currency? Was there any agreement on profit sharing, principal guarantee, or the manner of bearing losses? Was the use of leverage permitted? Such information may be scattered across WeChat chats, voice messages, transfer notes, and other communication records. Even if no written contract was signed, the original records should be retained as completely as possible, and only the parts favorable to oneself should be avoided.
In particular, note that if one previously promised "guaranteed principal safety" or "I will compensate for any losses," one cannot simply deny it after a dispute arises.The legal effect of the relevant statements and the consequences of liability must be determined in light of the full context, the nature of the transaction and the specific legal provisions.
The funds and transaction records should then be matched up. Where the money came from, which account it entered, when purchases and sales were made, and whether withdrawals, transfers, contract trading or forced liquidation ever occurred should all be matched to corresponding records as far as possible.
For exchange accounts, attention should be paid to historical orders, deposit and withdrawal records, asset statements and contract transaction records; for on-chain assets, the flow of assets can also be verified through wallet addresses, transaction hashes and the like. Such materials not only help to show whether funds were genuinely invested in trading, but also allow verification of exactly how the final losses arose.
A single screenshot showing a loss in the account may not be sufficient to fully prove where the funds went. A decline in the account balance may result from trading losses, but may also involve asset transfers, withdrawals or other operations, and must be assessed together with the complete records.
Finally, how to respond should be decided according to how the dispute develops.
If the matter is still at the stage of negotiation among friends, the investment funds, existing assets and actual losses can first be verified, and then the method of dispute resolution can be discussed. As for amounts that have not been verified, it is inadvisable to issue an IOU or make a commitment to repay in full at will, so as to avoid creating new legal disputes.
If the public security authority has already contacted the person concerned, the handling authority and the relevant procedures should be verified, the investigation should be cooperated with in accordance with law, the circumstances should be explained truthfully, and professional legal assistance should be sought promptly. Do not delete chat records, tamper with transaction data, fabricate contracts after the fact, or transfer the relevant assets in order to evade investigation.
Where a criminal investigation is involved, complete and truthful fund flows and transaction records are often of greater probative value than repeated after-the-fact explanations that "I did not deceive him".
Of course, if the verification reveals that one did in fact dispose of assets without authorization, conceal transactions or engage in other improper conduct, one cannot simply rely on "investment carries risks" as a ground for exemption from liability; rather, the possible civil, administrative or criminal liability should be assessed in light of the specific conduct.
Closing remarks
Helping a friend trade crypto often begins with trust. Some people feel they know a little about trading and are willing to trade on a friend's behalf; others, having seen a friend make money, hand their funds to the other party in the hope of earning returns themselves.
However, virtual asset prices change very quickly, and once a loss occurs, the profit-sharing, risk-bearing and operational authority that were never clearly agreed in the first place easily become the focus of dispute between the parties.
For those actually carrying out the operations, they cannot assume that merely because they did not charge a management fee or profit from the arrangement, they are necessarily free of liability; for investors, they likewise cannot assume that simply because the money was handed to a friend, they are necessarily entitled to demand full repayment once a loss occurs.
Whether an investment loss requires compensation depends on the transaction relationship, the validity of the contract, the actual operations and the cause of the loss; whether fraud is constituted requires further examination of deceptive conduct, the intent of illegal possession and the relevant evidence.
Especially once a dispute has arisen between the parties, or someone has even reported it to the police, it becomes all the more necessary to distinguish ordinary investment losses, unauthorized operations, assets of unknown whereabouts and fabricated investments. Trust between friends may bring about an investment, but when a dispute actually arises, what can ultimately establish the facts is still the parties' original agreement and the complete transaction evidence.
Reference sources:
People's Bank of China and seven other departments: Notice on Further Preventing and Addressing Risks Relating to Virtual Currencies and Related Matters (Yin Fa [2026] No. 42)
Civil Code of the People's Republic of China, Articles 153, 157 and 929
Criminal Law of the People's Republic of China, Article 266
Criminal Procedure Law of the People's Republic of China, Article 112
Issued by the Shandong High People's Court: Lu Fa Case [2026] No. 155, "Losses from Entrusting Another to Invest in Virtual Currencies: Who Bears the Loss?"
Issued by the Shandong High People's Court: Lu Fa Case [2026] No. 281, "Losses from Entrusted Investment in Virtual Currencies: Who Should Bear Them?"
