China's Local Governments Sell Seized Bitcoin for $1.4 Billion

Local governments in China are reportedly exploring methods to dispose of seized cryptocurrencies, facing obstacles 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.

Chinese local governments are utilizing private companies to sell seized cryptocurrencies in offshore markets, exchanging them for cash to bolster public finances. These sales have become a substantial source of income, with local governments holding approximately 15,000 Bitcoin (BTC) worth $1.4 billion at the end of 2023. China is estimated to hold around 194,000 BTC, valued at approximately $16 billion, making it the second-largest nation Bitcoin holder behind the US.

Professor Chen Shi from Zhongnan University of Economics and Law commented that these sales are a temporary solution that does not fully align with China’s current ban on crypto trading. The issue has been compounded by a surge in crypto-related crimes, including online fraud, money laundering, and illegal gambling. In 2024, the state sued over 3,000 individuals involved in crypto-related money laundering.

Shenzhen-based lawyer Guo Zhihao suggested that the central bank is better equipped to manage seized digital assets and should either sell them overseas or establish a crypto reserve. Ru Haiyang, co-CEO at a crypto exchange, echoed this suggestion, proposing that China could keep forfeited Bitcoin as a strategic reserve, similar to actions taken by the US. Additionally, creating a crypto sovereign fund in regions where crypto trading is legal has been proposed as a solution.

This issue has garnered attention amidst rising US-China trade tensions and plans to regulate stablecoins and foster growth in the crypto industry. Several industry observers have suggested that China’s tariff response could lead to a devaluation of the local currency, potentially driving a flight to crypto. The central bank's role in managing seized digital assets and the potential for a strategic crypto reserve highlight the evolving landscape of cryptocurrency regulation and its implications for public finances and economic stability.