China Faces Challenges with Seized Cryptocurrencies and Legal Framework

China is struggling with a rising volume of illegal cryptocurrency transactions, leading local governments to explore disposal methods while calling for clearer regulations. The country’s ban on crypto trading complicates the sale of seized cryptocurrencies, which are often converted to cash to support local finances. Critics highlight the need for a unified legal framework to tackle potential corruption and ineffective handling of these assets.

China is facing challenges with an increasing quantity of cryptocurrencies confiscated from illicit activities. Local governments are seeking strategies for disposal while advocating for clearer nationwide regulations, as reported by Reuters. Despite the official ban on cryptocurrency trading and non-recognition of digital tokens as legal tender, authorities are engaging private firms to convert seized cryptocurrencies like Bitcoin into cash to support local government finances in a sluggish economy.

The current fragmented method of managing these assets has faced criticism; legal experts argue that the lack of a cohesive legal framework leads to inconsistent practices. This situation may strengthen criminal operations and enable corrupt activities, complicating law enforcement efforts. The rising number of crypto-related crimes, including internet fraud, money laundering, and illegal gambling, intensifies the need for improved regulation.

Within China’s legal and financial communities, discussions are centring around the need for cryptocurrencies to be regarded as assets. There is a push for a standardized procedure for the disposal of such assets. Though seminars focusing on these topics may not result in immediate policy changes, there appears to be a growing agreement on the necessity for a clearer and more transparent system.

In 2023, losses from crypto-related crimes soared to 430.7 billion yuan ($59 billion), highlighting the urgency for a robust regulatory framework; however, the precise value of confiscated cryptocurrencies is yet to be clarified. Investigations have shown that one technology firm in Shenzhen has transacted over 3 billion yuan in cryptocurrencies on behalf of local governments since 2018. Furthermore, by the end of 2024, it was estimated that local governments held approximately 15,000 bitcoins, valued at around $1.4 billion.

Experts recommend that a more centralised strategy for managing confiscated cryptocurrencies could improve efficiency and optimise their value, thereby enhancing the potential financial benefits for local authorities.