Selling Seized Crypto: China's Unconventional Method Amid National Ban
Authorities in China Discussing Strategies for Managing Seized Bitcoin Assets Worth Over 100 Billion Yuan
Here's a lowdown on the controversial practice of local Chinese governments selling seized cryptocurrencies through private companies, despite the national ban on crypto trading.
The Growing Crypto Black Market in China
The issue has gained momentum as crypto-related crimes in China have skyrocketed. Money involved in such illicit activities increased tenfold to reach 430.7 billion yuan ($59 billion) in 2023, according to blockchain security firm SAFEIS. This includes cases of online fraud, money laundering, and illegal gambling.
The surge in busted crypto crimes has accounted for a significant portion of local governments' penalty and confiscatory incomes. These reached a record 378 billion yuan in 2023, marking a 65% increase over five years.
According to lawyer Liu Honglin, who advises local governments on crypto matters, seized cryptocurrencies have become a major contributor to local finances in some cities. Criminals favor digital coins due to their easy and anonymous transfer across borders.
The Sales Process
The process involves private companies acting as intermediaries. One such company, Jiafenxiang, has reportedly sold cryptocurrencies worth more than 3 billion yuan in offshore markets since 2018. Jiafenxiang has worked for several local governments, including authorities in Xuzhou, Hua'an, and Taizhou cities in China's eastern Jiangsu province.
The sales process works as follows: US dollar proceeds from crypto sales are exchanged into yuan through local banks, and the money is then transferred into accounts belonging to local finance bureaus.
By the end of 2023, local governments in China were estimated to hold approximately 15,000 Bitcoin worth $1.4 billion. China's total holdings are believed to amount to 194,000 BTC worth about $16 billion, making it the second-largest national Bitcoin holder behind the United States.
Calls for a National Crypto Policy
The practice of local governments selling seized crypto has raised concerns among legal experts. Professor Chen Shi from Zhongnan University of Economics and Law called it a "makeshift solution that, strictly speaking, is not fully in line with China's current ban on crypto trading."
Shenzhen-based lawyer Guo Zhihao proposes that China's central bank should take charge of dealing with seized digital assets. He suggests the central bank could either sell them overseas or build a crypto reserve, following a strategy similar to Trump's plan to create a national Bitcoin reserve.
Another proposed solution involves creating a crypto sovereign fund in Hong Kong, where crypto trading remains legal. This could help China maximize the value of seized cryptocurrencies through centralized management.
The debate around seized crypto has gained extra attention due to rising US-China trade tensions and Trump's plans to regulate stablecoins and foster crypto innovation. Some industry observers suggest that China's tariff response to US trade measures could drive more Chinese citizens toward cryptocurrency as a store of value.
Implications and Challenges
China's approach to seized cryptocurrencies highlights the tension between its anti-crypto stance and the practical demands of processing seized digital assets. A policy shift toward centralized management appears imminent as crypto-related crimes escalate.
However, challenges remain: regulatory conflicts complicate lawful disposal methods, creating opportunities for corruption and misuse. Technological hurdles also make managing volatile assets securely and without institutional infrastructure a significant barrier. Nonetheless, the outcome of these discussions could have far-reaching effects on both China's approach to digital assets and the global crypto market.
- Despite China's national ban on crypto trading, local governments have been selling seized cryptocurrencies through private companies, contributing significantly to their finances in some cities.
- Seized cryptocurrencies like Bitcoin have become a major contributor to local finances due to their easy and anonymous transfer across borders, with China estimated to hold approximately 15,000 Bitcoin worth $1.4 billion by the end of 2023.
- Legal experts have raised concerns about the practice, with Professor Chen Shi from Zhongnan University of Economics and Law describing it as a "makeshift solution" that might not align with China's current ban on crypto trading.
- Proposed solutions include China's central bank taking charge of dealing with seized digital assets, building a crypto reserve, or creating a crypto sovereign fund in Hong Kong.
- The debate around seized cryptocurrencies has been influenced by US-China trade tensions and Trump's plans to regulate stablecoins and foster crypto innovation, with some industry observers suggesting that China's tariff response could drive more Chinese citizens to cryptocurrency as a store of value.
