China’s Local Governments Sell Seized Cryptocurrencies Amid Trading Ban

Chinese local governments are selling seized cryptocurrencies through private companies, despite a national ban on crypto trading. At the end of 2023, China’s Bitcoin holdings reached approximately 15,000 BTC, valued at $1.4 billion. This revenue is vital due to a ten-fold increase in crypto-related crime to $59 billion. Experts are advocating for enhanced regulations and potential creation of a sovereign crypto fund.

Local governments in China have been selling cryptocurrencies that have been seized, despite the country’s trading ban. This emerging practice assists local authorities in improving their finances during economic downturns. By the end of 2023, it was reported that China held around 15,000 Bitcoin, valued at $1.4 billion, highlighting its significance as a revenue source for municipalities.

The escalation of crypto-related crime in China has drawn attention, with investment in illicit activities increasing tenfold to 430.7 billion yuan ($59 billion) within a year. Legal actions included lawsuits against over 3,000 individuals for activities such as money laundering and fraud, contributing to local governments’ revenue from penalties and confiscations.

The rising influx of seized cryptocurrencies into local government budgets has raised regulatory concerns. Due to insufficient regulations, there is inconsistency in how these assets are managed. Currently, local authorities utilise private enterprises to liquidate these assets in offshore markets, a method that many legal experts state does not align with official policy.

Legal professionals call for a change in management procedures for these digital assets. Guo Zhihao, a lawyer, suggested that the central bank would be more effective in managing cryptocurrencies, advocating for either overseas sales or the establishment of a reserve from seized digital assets.

Proposals for better management of seized cryptocurrencies have been discussed extensively. Suggestions include creating a centralized disposal system controlled by the central government or establishing a sovereign fund in Hong Kong, where trading is permitted. These proposals resonate amid increasing conversations concerning how to optimise the management of confiscated digital assets.

China’s hold on cryptocurrency positions it as the second-largest national holder of Bitcoin, after the United States. Private companies play a pivotal role in facilitating local governments’ sales of these seized assets, with firms like Jiafenxiang reportedly raising over 3 billion yuan via offshore transactions since 2018. The proceeds are converted into yuan and transmitted to local financial agencies, reflecting a lucrative business that increasingly attracts market participants.