China’s Local Governments Liquidate Seized Crypto Amid Economic Pressures

Chinese local governments are selling seized cryptocurrencies to mitigate economic challenges, despite a national ban on crypto trading. This has raised concerns about corruption and inconsistent asset management. The country holds a significant Bitcoin reserve, and experts advocate for a central bank-led approach to managing these digital assets as crypto-related crimes increase. Proposals include establishing a crypto reserve and creating a sovereign fund in Hong Kong, amid rising US-China trade tensions.

Local Chinese governments are reportedly attempting to liquidate seized cryptocurrencies amidst ongoing challenges posed by a nationwide ban on crypto trading. This situation has led to inconsistent and ambiguous management strategies, raising concerns over potential corruption, as indicated by legal experts speaking to Reuters on April 16.

To navigate these challenges, local authorities are partnering with private firms to conduct sales of seized cryptocurrencies in foreign markets for cash to support local revenue streams. As per transaction records, local governments in China had held around 15,000 Bitcoin valued at $1.4 billion by the close of 2023, making these sales a significant income source.

Overall, China possesses an estimated 194,000 Bitcoin, approximately worth $16 billion, solidifying its position as the world’s second-largest Bitcoin holder, following the United States, as per Bitbo reports. Professor Chen Shi from Zhongnan University noted that the ongoing sale of cryptocurrencies functions as a temporary workaround, not entirely compliant with China’s existing crypto trading prohibition.

The issue is further compounded by the upsurge in cryptocurrency-related criminal activities in China, including fraud, money laundering, and illegal gambling. In 2024 alone, over 3,000 individuals were prosecuted concerning crypto-linked money laundering, highlighting the urgency of addressing this matter.

Suggestions have emerged advocating the central bank manage confiscated digital assets, either by exporting them or establishing a cryptocurrency reserve. Ru Haiyang, co-CEO of Hong Kong-based HashKey exchange, and other experts have proposed that retaining Bitcoin as a strategic reserve could align with tactics employed by US authorities.

Another proposal discussed is the formation of a crypto sovereign fund in Hong Kong, where the legal trading of cryptocurrencies is permitted. This dialogue persists amid escalating US-China trade tensions and regulatory approaches towards stablecoins that may influence the crypto industry’s growth and innovation, giddying speculation about the potential depreciation of the Chinese yuan leading to a migration towards cryptocurrencies.