China Considers National Policy for Seized Cryptocurrencies Amid Crime Surge

China is contemplating a nationwide policy to manage cryptocurrencies seized from illegal activities, as the volume of digital assets linked to crimes such as fraud and money laundering continues to rise. The lack of clear guidelines has resulted in inconsistent disposal practices across different regions, raising concerns about potential misuse and corruption. This has sparked debates among policymakers and industry experts about the need for standardized regulations.

Currently, China does not recognize cryptocurrencies as legal tender; instead, they are treated as property. This legal status has allowed local regions to liquidate the assets, but the increasing scale of crypto-related offenses is prompting authorities to reconsider their approach. The value of crypto-linked crimes in China surged significantly in 2023, with over 3,000 individuals prosecuted for crypto-related money laundering. Authorities collected roughly 378 billion yuan in penalties and confiscated assets, a 65% rise over five years. The sale of these assets, often handled by private firms, has created a gray area with little oversight.

Legal advisor Liu Honglin noted that digital assets have become a notable revenue source for local governments. However, he highlighted the absence of clear regulations overseeing the third-party companies facilitating these liquidations. One such firm, Shenzhen-based Jiafenxiang, has sold over 3 billion yuan worth of crypto on behalf of various city governments since 2018. Its clients reportedly include several municipal administrations.

The fragmented and opaque system has sparked debate among policymakers and industry experts. Some argue that China should consider retaining seized digital assets instead of selling them immediately. Ru Haiyang, co-CEO of a licensed exchange, suggested China adopt a centralized reserve model similar to a recent proposal. Under this strategy, the central government would retain confiscated assets as part of a long-term national plan. This would mark a shift in policy and align more closely with emerging international trends.

If China adopts a similar approach, this would reflect a global shift toward treating crypto as strategic resources rather than disposable assets. The debate underscores the evolving nature of cryptocurrency regulation and the need for a cohesive national strategy to manage seized digital assets effectively.