Local governments in China are facing challenges when it comes to offloading seized cryptocurrencies due to the country's ban on crypto trading and exchanges. The lack of clear regulations on how authorities should handle seized crypto has led to inconsistent and opaque approaches, raising concerns about potential corruption, according to lawyers interviewed by Reuters in an April 16 report.
To navigate this issue, Chinese local governments are reportedly turning to private companies to sell seized cryptocurrencies in offshore markets in exchange for cash to replenish public coffers. At the end of 2023, these local governments held around 15,000 Bitcoin (BTC) valued at $1.4 billion, and the sales of these assets have become a significant source of income. China currently holds an estimated 194,000 BTC, worth approximately $16 billion, making it the second-largest Bitcoin holder globally behind the US, as reported by Bitbo.
Professor Chen Shi from Zhongnan University of Economics and Law highlighted that selling seized crypto through private companies is seen as a "makeshift solution" that does not fully align with China's current ban on crypto trading. The issue has been exacerbated by a surge in crypto-related crimes in China, including online fraud, money laundering, and illegal gambling. In 2024, the state reportedly prosecuted over 3,000 individuals involved in crypto-related money laundering.
To address these challenges, Shenzhen-based lawyer Guo Zhihao suggested that the central bank could play a more active role in managing seized digital assets by either selling them overseas or establishing a crypto reserve. Ru Haiyang, co-CEO at Hong Kong crypto exchange HashKey, proposed that China could retain forfeited Bitcoin as a strategic reserve, similar to how the US President Donald Trump has approached the matter.
Amid escalating trade tensions between the US and China and Trump's initiatives to regulate stablecoins and promote growth in the crypto industry, the idea of creating a crypto sovereign fund in Hong Kong, where crypto trading is legal, has also been floated as a potential solution.
Industry experts have pointed out that China's response to tariffs could lead to a devaluation of the local currency, potentially driving individuals towards cryptocurrencies as a hedge. This issue has gained prominence in the context of the broader economic and geopolitical landscape, emphasizing the need for clear regulations and strategies for handling seized cryptocurrencies in China.
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