TLDR
- Local governments in China are selling seized cryptocurrencies through private companies despite the country’s crypto trading ban
- China held approximately 15,000 Bitcoin worth $1.4 billion at the end of 2023, making seized crypto a significant revenue source for local authorities
- Money involved in crypto-related crimes in China surged 10-fold to 430.7 billion yuan ($59 billion) in 2023
- Experts are calling for better regulation and centralized management of seized digital assets
- Some suggest China should keep seized Bitcoin as a strategic reserve following Trump’s approach or create a sovereign crypto fund in Hong Kong
Local governments across China have been quietly selling confiscated cryptocurrencies through private companies to boost their finances, despite the country’s official ban on crypto trading. This practice has sparked debate among legal experts and industry professionals about the need for clearer regulations.
According to a Reuters report published on April 16, Chinese authorities held approximately 15,000 Bitcoin worth $1.4 billion at the end of 2023. The sales of these digital assets have become a major source of income for local governments facing economic slowdown.
Rising Crypto Crimes Fuel Government Coffers
The issue has gained prominence alongside a surge in crypto-related criminal activities in China. Money involved in crypto crimes increased ten-fold to 430.7 billion yuan ($59 billion) in 2023, according to blockchain security firm SAFEIS.
Last year, China sued over 3,000 people involved in crypto-related money laundering. These cases range from internet fraud to money laundering and illegal gambling.
The rise in busted crypto crimes has coincided with a jump in local governments’ penalty and confiscation incomes. These revenues hit a record 378 billion yuan in 2023, representing a 65% increase over five years, according to official public budget data.
Liu Honglin, a lawyer who advises local governments on crypto issues, told Reuters that seized cryptocurrencies have become a major contributor to local finances in some cities. Digital coins are increasingly popular tools for criminals due to their easy and anonymous cross-border transfer capabilities.
Lack of Clear Regulations Creates Concerns
The absence of clear rules on how authorities should manage seized cryptocurrency has led to “inconsistent and opaque approaches,” which some lawyers fear could enable corruption. Currently, local governments are using private companies to sell the digital assets in offshore markets in exchange for cash.
This practice is described by Chen Shi, a professor at Zhongnan University of Economics and Law, as “a makeshift solution that, strictly speaking, is not fully in line with China’s current ban on crypto trading.”
Guo Zhihao, a Shenzhen-based lawyer, believes China’s central bank is better positioned to handle the cryptocurrencies. He suggests the bank should either sell them overseas or build a crypto reserve from seized tokens.
The situation has prompted discussions among lawyers, judges, and police about potential changes to rules governing how confiscated virtual currencies are treated. These changes could be a game-changer for China’s crypto industry.
Proposed Solutions for Managing Seized Assets
Several solutions have been proposed for managing China’s growing pile of seized cryptocurrencies. One suggestion is to establish a centralized system under the central government for cryptocurrency disposal.
Ru Haiyang, co-CEO at Hong Kong’s largest licensed crypto exchange HashKey, suggested that China might want to follow Trump’s approach and keep forfeited bitcoins as a strategic reserve. This would involve the central government consolidating asset disposals.
Another proposal involves setting up a crypto sovereign fund in Hong Kong, where crypto trading is legal. Winston Ma, adjunct professor at NYU Law School and a former managing director of China Investment Corp, believes “a more centralized management would help China maximize the value of the seized cryptocurrencies.”
The debate over how to handle seized crypto assets comes at a time of heightened tensions between China and the United States. It coincides with Trump’s plans to deregulate cryptocurrencies and build a bitcoin reserve.
According to data from Bitbo, China holds an estimated 194,000 BTC worth approximately $16 billion. This makes China the second largest national Bitcoin holder behind the United States.
Private companies have been instrumental in helping local governments sell these digital assets. Jiafenxiang, a Shenzhen-based technology company, has reportedly sold cryptocurrencies worth more than 3 billion yuan in offshore markets since 2018 on behalf of several local governments.
The proceeds from these sales are converted to yuan through local banks before being transferred to the accounts of local finance bureaus, according to transaction records reviewed by Reuters.
Sun Jun, a crypto-focused lawyer and senior partner at Shanghai Landing Law Offices, described helping local governments dispose of cryptocurrencies as “a highly profitable business that attracts more and more participants.”
