China Offloads $16B in Seized Bitcoin: Regulatory Gaps Spark Major Concerns
China’s local governments are increasingly turning to the sale of seized cryptocurrencies to bolster public finances, despite the nation’s stringent ban on crypto trading.
This practice, driven by a lack of clear regulations, has sparked concerns about transparency and potential corruption, according to a Reuters report.
Offloading Seized Assets Through Private Channels
Local authorities in China have amassed significant cryptocurrency holdings, primarily from illicit activities such as fraud, money laundering, and illegal gambling.
By the end of 2023, these entities held approximately 15,000 Bitcoin, valued at $1.4 billion, with China’s total reserves estimated at 194,000 BTC, worth around $16 billion, per Bitbo data.
This positions China as the second-largest national Bitcoin holder, trailing only the United States. To liquidate these assets, local governments have engaged private firms to sell seized cryptocurrencies in offshore markets, converting proceeds into yuan for public coffers.
Since 2018, firms like Jiafenxiang have facilitated sales exceeding 3 billion yuan, Reuters noted.
However, Professor Chen Shi from Zhongnan University of Economics and Law described these transactions as a “makeshift solution that, strictly speaking, is not fully in line with China’s current ban on crypto trading.”
Regulatory Ambiguity Fuels Concerns
The absence of standardized guidelines for handling seized digital assets has led to “inconsistent and opaque approaches,” raising fears of corruption among legal experts.
In 2024, China prosecuted over 3,000 individuals for crypto-related money laundering, with illicit activities tied to $59 billion in funds. This surge in crypto-related crime, coupled with a 65% increase in confiscation revenues to $378 billion, underscores the growing financial significance of these assets.
Lawyer Guo Zhihao, speaking at a January 2025 seminar, proposed that China’s central bank oversee the management of seized cryptocurrencies, either by selling them abroad or establishing a national reserve, mirroring U.S. President Donald Trump’s strategic Bitcoin reserve initiative.
Ru Haiyang, co-CEO of Hong Kong-based HashKey, supported this, suggesting that retaining forfeited Bitcoin could serve as a strategic asset.
A Path Toward Regulation?
As U.S.-China trade tensions escalate and Trump pushes for crypto deregulation, some experts advocate for China to establish a crypto sovereign fund in Hong Kong, where trading is legal.
Such a move could address the regulatory conflict highlighted by Guo and provide a transparent framework for managing seized assets.
While no policy changes were confirmed at the seminar, the consensus among attendees was clear: China must formally recognize cryptocurrencies and develop a robust process for handling seized digital assets to align with its economic and legal objectives.