Chinese local governments are liquidating seized cryptocurrencies to support public finances amidst economic challenges. By the end of 2024, they held around 15,000 Bitcoin, valued at $1.4 billion. However, this practice operates in a grey area due to China’s crypto trading ban. Legal experts have urged for regulatory reforms to manage seized assets appropriately.
China’s local authorities are liquidating crypto assets seized from illegal activities to bolster public finances amid an economic slowdown. As of the end of 2024, these governments held an estimated 15,000 Bitcoin, valued at approximately $1.4 billion. This initiative is a response to the growing crises in municipal budgets caused by declining growth and increased expenditures.
The practice of selling these seized crypto assets is seen as a workaround within a regulatory grey area, as China has enforced a ban on crypto trading since September 2021. Transactions linked to these liquidations have injected millions into municipal budgets, highlighting a significant regulatory void regarding the management of digital assets seized from fraud, money laundering, and other illicit activities.
Legal experts and officials, including Chen Shi, a law professor, argue that the current method of asset liquidation does not align with the crypto trading ban and poses risks of corruption and increased criminal activity. They advocate for reforms to establish clearer guidelines and oversight.
Despite the trading ban, local authorities have used private firms to convert these digital assets into cash through foreign crypto exchanges. Methods such as offshore sales and peer-to-peer transactions have become prevalent, enabling traders in mainland China to evade regulatory oversight.
For instance, Jiafenxiang, a Shenzhen-based firm, has reportedly managed over 3 billion yuan (approximately $410 million) in crypto sales since 2018 for local governments, converting dollar proceeds to yuan for municipal finance needs. Legal authorities are suggesting that the central bank should oversee the management of seized cryptocurrencies which might entail a national reserve similar to previous U.S. proposals for a Bitcoin reserve.
China initially banned crypto trading to curb speculative financial activities and limit capital flight, as many used crypto for transferring money abroad. Following the ban, the government’s focus shifted to developing a state-backed digital currency, known as the digital yuan (e-CNY), aiming to establish a regulated digital payment system to mitigate the risks associated with unregulated cryptocurrencies.
