As China grapples with a growing pile of cryptocurrencies seized from illegal activities, local governments are navigating uncharted territory to dispose of these digital assets. With crypto trading banned on the mainland, the lack of clear regulations has led to inconsistent practices, raising concerns about transparency, corruption, and compliance. This article explores the challenges, proposed solutions, and the broader implications for China’s crypto landscape amid global shifts in digital currency policies.
The Rise of Seized Cryptocurrencies in China
China’s strict ban on cryptocurrency trading, implemented in 2021, prohibits the use of digital tokens as legal tender or assets. Despite this, cryptocurrencies like Bitcoin and Ethereum remain popular tools for illegal activities, including money laundering, online fraud, and illegal gambling. According to blockchain security firm SAFEIS, the value of crypto-related crimes in China surged tenfold to 430.7 billion yuan ($60 billion USD) in 2023. In the same year, Chinese authorities prosecuted 3,032 individuals for crypto-related money laundering, as reported by the country’s top procurator.This crackdown has left local governments holding an estimated 15,000 Bitcoins (valued at approximately $1.4 billion USD at the end of 2024), making China the 14th largest Bitcoin holder globally, according to bitcoin investment firm River. These seized assets have become a significant contributor to local government finances, with penalty and confiscatory incomes reaching a record 378 billion yuan in 2023—a 65% increase over five years, per official budget data.
The Challenge: Disposing of Seized Cryptocurrencies
While the ban on crypto trading remains firm, local governments face a practical dilemma: how to liquidate seized digital assets to replenish strained public coffers in a slowing economy. Currently, many rely on private companies to sell these cryptocurrencies in offshore markets, converting the proceeds into yuan through local banks. For example, Shenzhen-based Jiafenxiang Technology has facilitated sales of cryptocurrencies worth over 3 billion yuan since 2018 for cities like Xuzhou, Hua’an, and Taizhou in Jiangsu province.
However, this approach is far from ideal. Legal experts, such as Chen Shi, a professor at Zhongnan University of Economics and Law, describe these disposals as a “makeshift solution” that conflicts with China’s crypto trading ban. The absence of standardized regulations has led to:
- Inconsistent Practices: Different regions adopt varying methods, creating a patchwork of approaches.
- Opacity Risks: Lack of oversight raises concerns about potential corruption or mismanagement.
- Regulatory Gaps: Private companies handling disposals operate without clear guidelines, increasing risks to asset security.
Liu Honglin, a lawyer advising local governments, emphasizes the need for regulatory reform, noting that seized cryptocurrencies are becoming a major financial resource for some cities. Without proper rules, the system remains vulnerable to exploitation.
Proposed Solutions: A Path to Better Regulation
To address these challenges, legal experts, senior judges, and police officials are debating reforms to streamline the handling of seized cryptocurrencies. Discussions gained momentum at a January 2025 seminar attended by industry stakeholders. Key proposals include:
1. Centralized Management by the Central Bank
Guo Zhihao, a senior partner at Beijing Yingke Law Firm, suggests that China’s central bank, the People’s Bank of China (PBoC), is better equipped to manage seized cryptocurrencies. Options include:
- Offshore Sales: Selling digital assets through licensed international exchanges to comply with China’s domestic ban.
- Crypto Reserve: Following the example of U.S. President Donald Trump’s proposed Bitcoin reserve, China could retain seized tokens as a strategic asset.
2. Establishing a Dedicated Agency
Sun Jun, a crypto-focused lawyer at Shanghai Landing Law Offices, advocates for a specialized agency or system to oversee cryptocurrency disposals. This would involve:
- Clarifying the legal status of virtual currencies.
- Vetting third-party companies to ensure compliance and security.
- Setting standardized procedures for asset liquidation.
3. Learning from Global Models
Winston Ma, adjunct professor at NYU Law School and former managing director at China Investment Corp, proposes a centralized approach inspired by global practices. He suggests creating a crypto sovereign fund in Hong Kong, where crypto trading is permitted, to maximize the value of seized assets.
Ru Haiyang, co-CEO of Hong Kong-based HashKey Exchange, also supports retaining forfeited Bitcoins as a strategic reserve, aligning with emerging global trends in cryptocurrency adoption.
The Global Context: Sino-U.S. Tensions and Crypto Deregulation
The debate over seized cryptocurrencies comes at a time of heightened geopolitical tensions, particularly during Donald Trump’s second presidency (inaugurated January 2025). Trump has pledged to deregulate cryptocurrencies in the U.S. and build a national Bitcoin reserve, positioning digital assets as a strategic economic tool. This contrasts sharply with China’s restrictive stance, creating a complex backdrop for policymakers.
As the U.S. embraces cryptocurrencies, China faces pressure to balance its regulatory framework with economic realities. The growing volume of seized digital assets underscores the need for a pragmatic approach that aligns with global trends while maintaining domestic control.
The Role of Private Companies: Opportunities and Risks
Private companies like Jiafenxiang have capitalized on the demand for crypto disposal services, turning it into a highly profitable business. According to Bit Jungle, a blockchain service provider, such activities are legitimate if conducted through licensed offshore exchanges and in compliance with capital management rules. However, the lack of regulatory oversight raises concerns about:
Asset Security: Ensuring cryptocurrencies are safely transferred and sold.
Transparency: Preventing mismanagement or illicit profiteering.
Compliance: Adhering to China’s anti-money laundering and capital control regulations.
To mitigate these risks, experts call for stricter vetting of third-party providers and clear guidelines for their operations.
Why It Matters: Economic and Legal Implications
The handling of seized cryptocurrencies has far-reaching implications for China’s economy and legal system:
- Economic Impact: Liquidating digital assets provides a vital revenue stream for local governments facing budget constraints.
- Legal Clarity: Defining the property attributes of cryptocurrencies could pave the way for broader regulatory reforms.
- Global Influence: A centralized crypto management system could position China as a leader in addressing the challenges of digital assets, even within a restrictive framework.
As crypto-related crimes continue to rise, the urgency for reform grows. Better supervision and standardized processes could enhance transparency, reduce risks, and align China’s practices with its economic goals.
Conclusion: A Turning Point for China’s Crypto Policy?
China’s growing stash of seized cryptocurrencies presents both a challenge and an opportunity. While the current system of disposal through private companies has filled a gap, it is neither sustainable nor fully compliant with the country’s crypto ban. Proposed reforms, from centralized management to strategic reserves, signal a potential shift in how China navigates the complex world of digital currencies.
As global attitudes toward cryptocurrencies evolve—particularly with the U.S. embracing deregulation—China’s next steps will be closely watched. By establishing clear regulations and robust oversight, the country can turn a regulatory headache into a strategic advantage, ensuring seized assets contribute to public finances without compromising legal integrity.