China is assessing new regulations for managing seized cryptocurrencies valued at $59 billion amid rising criminal activities involving digital assets. Local governments have been profiting from the sale of confiscated crypto through private firms, raising concerns about regulatory consistency. The situation highlights contradictions in China’s governance, where prohibition exists alongside financial exploitation of digital assets. This contrasts with global regulatory developments, indicating divergent approaches to cryptocurrencies.
China is currently evaluating new regulations for the management of cryptocurrencies seized in relation to illegal activities. This discussion arises in light of an alarming increase in criminal cases involving digital assets, with the blockchain security firm SAFEIS reporting an alarming total loss of 430.7 billion yuan (approximately US$59 billion) due to crypto-related crimes in 2023. These crimes include fraud, money laundering, and illegal gambling, highlighting the need for regulatory clarity.
Local governments are currently utilising private firms to sell seized cryptocurrencies, converting the proceeds into yuan. However, this practice lacks a cohesive regulatory framework, leading to inconsistencies in the way these assets are managed and liquidated across different jurisdictions. The growth in the use of digital assets for unlawful purposes further complicates this scenario, necessitating a more systematic approach to asset management.
The situation can be seen as a contradiction of China’s regulatory stance. While the country has imposed a ban on cryptocurrency trading, local authorities are profiting from selling seized cryptocurrencies, highlighting a paradox in governance. The estimated 15,000 bitcoins held by local governments underscore the scale of this regulatory grey area. This tension between central control and local financial needs illustrates broader challenges in governance dynamics, particularly as local governments seek revenue amid economic pressures.
Asset seizures have turned into a vital revenue channel for local governments struggling with a slowing economy. In 2023, local authorities recorded 378 billion yuan ($59 billion) from penalties and confiscations, marking a 65% increase over five years. The surge in crypto-related crime fees reflects a significant rise in illicit activities, creating a financially self-reinforcing system where authorities benefit from the enforcement of these crimes, prompting possible prioritisation over other financial infractions.
China’s distinctive approach stands in stark contrast to the evolving regulatory landscapes worldwide. While jurisdictions like the U.S. focus on creating supportive frameworks for responsible digital asset growth, China continues to tighten restrictions while simultaneously benefitting financially from seized assets. Examples from El Salvador and the Central African Republic illustrate alternative approaches that embrace cryptocurrencies as legal tender, contrasting sharply with China’s stance. The potential consideration of a sovereign crypto fund in Hong Kong may indicate a shift towards a more pragmatic regulatory outlook.
