Chinese Local Authorities Contemplate Liquidating Confiscated Cryptocurrency Following Trading Prohibition

Local authorities in China are investigating methods to liquidate confiscated digital currency, maneuvering through a legal ambiguity resulting from the nation’s stringent prohibition on crypto trading and exchanges.

As reported by Reuters on April 16, the lack of definitive regulations regarding the management of seized digital assets has resulted in varying practices and raised issues concerning transparency and potential corruption.

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Chinese Officials Engage Private Companies to Crypto market Seized Crypto Overseas

Referring to court documents and transaction records, Reuters disclosed that certain local governments have enlisted private companies to market confiscated crypto asset holdings in international markets, subsequently converting the assets into cash to base level public financial resources.

Reportedly, these initiatives have yielded considerable revenue. By the end of 2023, local authorities had amassed around 15,000 BTC (BTC), approximating a value of $1.4 billion.

China is currently estimated to possess roughly 194,000 BTC valued at $16 billion, making it the second-largest national holder of Bitcoin globally, just behind the United States, based on data from Bitbo.

Chen Shi, a professor at Zhongnan University of Economics and Law, shared with Reuters that this method represents a “temporary fix” and does not entirely adhere to China’s comprehensive crypto ban.

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The situation is further complicated by an increase in cryptocurrency-related offenses across the nation, such as fraud, illegal gambling, and money laundering. In 2024, over 3,000 individuals faced prosecution for crypto-related money laundering.

Legal professionals and industry experts have suggested alternative approaches for asset management. Guo Zhihao, a lawyer from Shenzhen, proposed that the People’s Bank of China assume control of seized cryptocurrencies and consider selling them internationally or converting them into a national reserve.

Ru Haiyang, co-CEO of the Hong Kong trading network HashKey, supported this notion, remarking that China could adopt the US approach of utilizing forfeited BTC as a strategic asset.

Additionally, some have proposed the creation of a sovereign crypto asset fund in Hong Kong, where crypto trading is legally accepted. This discussion arises amidst escalating US–China tensions and Donald Trump’s initiative to enforce stricter oversight of stablecoins while promoting crypto innovation.

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Chinese Citizens Utilize Offshore Platforms for Crypto Trading

In spite of a nationwide ban on crypto trading and crypto mining in recent years, numerous Chinese citizens are still accessing digital currencies through offshore exchanges, peer-to-peer networks, and VPNs. These workaround methods have complicated enforcement efforts.

As concerns heighten regarding the management of seized cryptocurrencies, conversations among policymakers are increasing. Legal experts indicate that the absence of definitive national guidelines has resulted in inconsistent practices and heightened risks of mismanagement or corruption.

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