Chinese Local Governments Sell $1.4 Billion in Seized Cryptocurrencies

Chinese local governments have been discreetly selling confiscated cryptocurrencies worth around $1.4 billion. This practice is occurring in a regulatory gray area, which experts warn could lead to corruption and undermine the country’s official ban on crypto trading. The sale of these digital assets is being conducted through private companies, which liquidate the seized cryptocurrencies overseas and convert them into cash to help fill gaps in struggling local budgets. This approach is seen as a temporary solution but does not fully align with China's current ban on crypto trading.

The amount of seized crypto has increased alongside a rise in digital asset-related crime in China. By the end of 2023, the country held roughly 15,000 Bitcoin, valued at around $1.4 billion. However, the real number may be much higher, potentially up to 194,000 Bitcoin worth around $16.3 billion. This would put China second only to the U.S. in terms of government Bitcoin holdings. The U.S. reportedly controls over 207,000 Bitcoins valued at approximately $17.4 billion.

The situation reflects China’s complicated relationship with crypto. While the government banned trading in 2021, authorities now find themselves sitting on large crypto reserves acquired through crackdowns on online fraud, gambling, and money laundering. To avoid misuse, lawyers have been calling for reform. Suggestions include China’s central bank taking over management of these assets, either by selling them abroad or creating a national crypto reserve.

The debate comes as crypto-related criminal activity in China surges. The volume of money involved in such crimes spiked tenfold to about 430.7 billion yuan ($59 billion) in 2023. Moreover, Chinese courts prosecuted more than 3,000 individuals last year for crypto-based money laundering. Some analysts say Beijing may also be paying closer attention to crypto assets over fears of capital flight, especially with rising trade tensions with the U.S. Earlier this month, Former BitMEX CEO Arthur Hayes suggested that new American tariffs could drive flows from Chinese yuan into Bitcoin.

In summary, the sale of $1.4 billion in Bitcoin by Chinese authorities reflects the ongoing challenges of managing seized cryptocurrencies in a regulatory vacuum. The lack of clear guidelines and the rise in crypto-related crimes add to the complexity, while the potential global impact of these sales underscores the interconnected nature of the cryptocurrency market. As China continues to navigate these issues, the world will be watching to see how it addresses the regulatory and ethical challenges posed by digital assets.