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Local governments across China are turning to private companies to sell confiscated cryptocurrencies in offshore markets, circumventing the country’s own ban on crypto trading. This practice has emerged as authorities seek to convert seized digital assets into cash to boost public finances, according to an April 16 report by Reuters.
The practice comes amid a lack of clear guidelines on how authorities should manage seized cryptocurrency. This regulatory gap has created what some legal experts describe as “inconsistent and opaque approaches” to handling these digital assets.
China has seen a rise in crypto-related criminal activities. These range from online fraud and money laundering to illegal gambling. The state sued more than 3,000 people involved in crypto-related money laundering in 2024 alone.
Blockchain security firm SAFEIS reported that the total value involved in crypto-related crimes reached 430.7 billion yuan (US$59 billion) in 2023. This figure represents a major increase from previous years.
Local governments held approximately 15,000 Bitcoin worth $1.4 billion at the end of 2023. The sales of these assets have become an important source of income for these authorities.
China is estimated to hold about 194,000 Bitcoin worth approximately $16 billion in total. This makes it the second largest national Bitcoin holder behind the United States, according to data from Bitbo.
The current approach to selling seized crypto assets exists in a regulatory gray zone. Zhongnan University of Economics and Law professor Chen Shi told Reuters that these sales are a “makeshift solution that, strictly speaking, is not fully in line with China’s current ban on crypto trading.”
Without clear national guidelines, local authorities have developed their own methods for handling these assets. They typically work with private firms to sell the digital currencies in markets outside China.
The proceeds are then converted to yuan and added to local government budgets. This process lacks uniform regulation and transparency.
Some legal experts worry that the absence of standardized procedures could potentially open doors to corruption. The current system allows for varying interpretations of how these assets should be processed and sold.
Several experts have suggested alternative approaches to the current patchwork system. Shenzhen-based lawyer Guo Zhihao believes that China’s central bank is better positioned to handle seized digital assets.
Guo recommended that the central bank either sell the cryptocurrencies overseas or build a national crypto reserve. This would create a more centralized and regulated approach.
Ru Haiyang, co-CEO at Hong Kong crypto exchange HashKey, echoed this suggestion. He noted that China might want to keep forfeited Bitcoin as a strategic reserve, similar to what US President Donald Trump has proposed.
Another proposal involves creating a cryptocurrency sovereign fund in Hong Kong, where crypto trading remains legal. This would allow China to manage these assets within its broader territory but in a jurisdiction with clearer regulatory frameworks.
These discussions are taking place against a backdrop of rising US-China trade tensions. Some industry observers suggest that China’s tariff responses could result in a devaluation of the local currency.
Such economic pressures might increase interest in cryptocurrencies as alternative stores of value. This adds urgency to the question of how China will manage its growing holdings of seized digital assets in the future.
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