In the face of increasing economic difficulties and a rise in confiscated cryptocurrencies, local governments in China are turning to selling seized digital assets to support strained public finances. This activity poses legal and regulatory challenges, particularly in light of China's ban on crypto trading.
China was reportedly in possession of about 15,000 Bitcoin (BTC) valued at $1.4 billion by the end of 2024, making it one of the top 15 global holders of this asset. Despite the national ban on crypto trading, there are indications that China's local governments are disposing of digital currencies through private entities.
Cas Abbe, a Web3 growth manager affiliated with the Binance exchange, highlighted that the decrease in crypto prices could be partly attributed to these selling activities by local Chinese governments looking to boost their financial resources. The rise in selling off seized digital assets coincides with challenges in handling cryptocurrencies confiscated in criminal investigations, which saw a sharp increase in 2023.
In 2023, over $59 billion was associated with crypto-related crimes in China, resulting in the prosecution of more than 3,000 individuals for various offenses such as internet fraud and illegal gambling. Despite the ban imposed by Beijing, local governments are reportedly utilizing private firms to convert confiscated tokens into cash to finance their budgets.
A technology firm named Jiafenxiang, based in Shenzhen, has reportedly sold over 3 billion yuan ($414 million) worth of digital assets in overseas markets since 2018. Documents obtained by Reuters indicate that the company has engaged in liquidation deals with local authorities in Xuzhou, Hua’an, and Taizhou.
While this approach may provide relief to financially struggling regions, the process exists in a legal grey area and raises concerns about transparency and legality. Analysts are questioning the legitimacy of these actions without clear regulatory guidance.
Experts are urging immediate regulatory revisions, proposing the recognition of cryptocurrencies as assets by the judiciary and the establishment of standardized procedures for asset disposal. Some are even suggesting the establishment of a central national crypto reserve, akin to proposals made during the Trump administration to strategically manage seized assets.