China’s Controversial Sales of Seized Bitcoin Amid Regulatory Confusion

China has sold approximately $16 billion worth of seized Bitcoin, despite a trading ban, raising concerns about regulatory clarity and potential corruption. Local governments are partnering with private firms to liquidate these assets, taking advantage of a lack of clear national guidelines, which may lead to illegal practices. Calls for centralised oversight from the central bank are growing amid rising crypto-related crimes and increasing government revenue from confiscated assets.

China is managing a substantial amount of seized cryptocurrencies from illegal activities, which local governments have been selling despite a national ban on trading. This has generated considerable income but raises concerns regarding regulatory clarity and potential corruption, prompting experts to call for official guidelines for managing these assets, possibly involving the central bank.

Although cryptocurrency trading has been prohibited since 2021, local governments have amassed approximately 15,000 Bitcoin — valued at around $1.4 billion — from criminal cases. Overall, China has reportedly sold around 194,000 Bitcoin, equating to roughly $16 billion, positioning it as the second-largest Bitcoin holder globally, following the United States.

To facilitate these sales, local governments collaborate with private firms such as Jiafenxiang, which have transacted over 3 billion yuan in crypto since 2018. Proceeds from these sales are converted into yuan and allocated to local government accounts. However, the lack of a clear regulatory framework raises significant legal and financial concerns.

The absence of national guidelines on seized cryptocurrencies has led to inconsistent practices across different regions, causing alarm among legal professionals. Many speculate that this ambiguity could foster illegal activities and heighten corruption risks, as highlighted in a Reuters report.

There are ongoing discussions among judges, lawyers, and police officials about creating new regulations for handling seized crypto. This debate coincides with escalating tensions with the United States, where plans are underway to deregulate cryptocurrency and potentially establish a national Bitcoin reserve.

Legal expert Guo Zhihao has pointed out the contradiction in China’s approach; while crypto trading is banned, local governments are actively selling seized assets. He suggests that oversight by the central bank could help address these issues, potentially through partnerships with licensed offshore exchanges or a national sovereign cryptocurrency fund in Hong Kong to enhance the value of these assets.

Furthermore, in 2023, China experienced a significant rise in crypto-related crimes, with reported losses reaching $59 billion. This surge in illegal activities has also led to increased government revenues from confiscated assets, which saw a 65% rise, reaching a record $378 billion. For some municipalities, crypto sales constitute a vital financial resource, underscoring the urgent need for effective regulation.

In this context, China is confronted with a crucial choice: whether to maintain its stringent ban on cryptocurrencies or reevaluate its framework to create formal regulations as the situation develops. The international community is closely monitoring this situation as it evolves.