What Will China Do With Its $1.4B in Seized Bitcoin?

China’s Crypto Puzzle: What to Do With Seized Digital Wealth?

China is facing a modern financial puzzle what should it do with the massive stash of cryptocurrencies it’s seized from criminals?

With crypto trading banned across the mainland, authorities are stuck holding billions in Bitcoin and other digital tokens that they legally can’t trade. But the growing value and volume of this confiscated crypto is forcing the government’s hand and triggering big debates in courtrooms, financial offices, and policy think tanks.

Let’s break down what’s going on.

Crypto Ban vs. Real-World Confusion

Since China banned cryptocurrency trading, digital tokens like Bitcoin are neither legal currency nor legally recognized assets in the country. But that hasn't stopped criminals from using them for internet fraud, gambling, and money laundering.

As more criminal cases involving crypto pile up, local governments are sitting on mountains of digital assets. Without clear rules, they’ve quietly started selling these tokens using private firms    often through offshore exchanges and converting the proceeds to Chinese yuan.

Law experts say this makeshift system is murky and inconsistent. Some fear it could lead to corruption or even encourage illegal crypto activities, since there's profit in the confusion.

The Numbers Are Huge

The scale of this issue is staggering. According to blockchain security firm SAFEIS, crypto-related crime exploded tenfold in 2023 to 430.7 billion yuan (around $60 billion). That same year, China charged over 3,000 people for crypto-linked money laundering.

And this isn’t just a law enforcement problem. Local government revenue from penalties and asset seizures    many involving crypto surged to 378 billion yuan last year, a 65% increase from five years ago.

Clearly, these digital assets have become a big revenue stream for some municipalities.

How Are Seized Cryptos Being Sold?

Enter companies like Jiafenxiang, a Shenzhen-based tech firm that’s quietly helped governments in cities like Xuzhou and Taizhou sell over 3 billion yuan worth of crypto offshore since 2018.

Here’s how it reportedly works:

• Seized cryptocurrencies are sold via international exchanges.
• The proceeds are converted to U.S. dollars, then to Chinese yuan.
• The funds are finally deposited into local finance department accounts.
  
   

But the entire process is being done in gal gray zones, with no formal oversight of the companies handling these massive transactions.

What Experts and Courts Are Saying

This growing crypto conundrum has caught the attention of judges, financial regulators, and lawyers. A recent seminar with top officials, lawyers, and judges debated how China should move forward.

Some key suggestions include:

• Officially recognizing crypto as a form of property.
• Establishing a central authority or reserve for handling confiscated crypto.
• Vetting and regulating third-party firms used for asset liquidation. 

Lawyer Liu Honglin said that with crypto now a "major contributor" to local government funds, strict rules are urgently needed to prevent misuse.

Could China Follow Trump’s Lead?

Interestingly, some in China are looking to U.S. policy for inspiration. Under Donald Trump’s second term, the U.S. has floated the idea of a strategic bitcoin reserve using seized or government-acquired tokens to build a national crypto stockpile.

Ru Haiyang, co-CEO of Hong Kong-based crypto exchange HashKey, thinks China could do something similar. By managing confiscated digital assets centrally perhaps even creating a crypto fund based in Hong Kong China could get better returns and tighter control.

Winston Ma, a former managing director at China Investment Corp, agrees. He believes a centralized crypto management system would help “maximize value” and reduce corruption risks.

Final Thoughts

China’s crypto dilemma is a symptom of a broader conflict: a fast-evolving digital economy versus slow-moving regulations. While crypto trading remains banned, the reality is that digital coins are flooding into government hands through criminal seizures.

With billions on the line and rising financial stakes, China can’t afford to keep handling crypto in legal limbo. Whether it creates a crypto reserve, sets new liquidation rules, or opens the door for courts to recognize digital assets, one thing is clear change is coming.

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