Amid China's ongoing ban on cryptocurrency transactions and exchanges, local authorities are facing legal uncertainty regarding the handling of confiscated digital assets. According to Reuters, citing court documents, some regions have begun selling seized cryptocurrency through private companies outside the country to supplement local budgets.
As of the end of 2023, Chinese local governments held around 15,000 bitcoins (BTC), equivalent to $1.25 billion at the current rate. This represents only a portion of the total reserves — China is estimated to hold about 194,000 BTC, or $16.1 billion, making it the second-largest bitcoin holder globally after the United States (207,189 BTC).
Crime and Pressure on the System
The issue is further complicated by the rise in cryptocurrency-related crime in the country. In 2024 alone, authorities charged more than 3,000 individuals involved in money laundering through digital assets. Cases include online fraud and illegal gambling operations.
Authority Over Asset Management
Lawyers interviewed by Reuters point to the lack of clear procedures and standards, leading to “inconsistent and opaque approaches” in the management of confiscated crypto.
According to Chen Shi, a professor at Zhongnan University of Economics and Law, these actions appear to be temporary measures and legally misaligned with the current ban.
Shenzhen-based lawyer Guo Zhihao believes that such assets should be handled not by local governments but by the People’s Bank of China, which could establish a crypto reserve or centrally manage foreign sales of the assets.
A similar view was expressed by Ru Haiyang, co-managing director of the Hong Kong crypto exchange HashKey. He noted that China could consider strategic accumulation of cryptocurrencies, similar to the approach taken by U.S. President Donald Trump with bitcoin.
Potential Solution Through a Sovereign Crypto Fund
One proposed solution is the creation of a sovereign cryptocurrency fund based in Hong Kong, where digital asset trading is legally permitted. Such a structure would allow China to formalize its handling of crypto assets and use them to support public finances amid macroeconomic instability.
Rising Tensions With the United States
The issue has gained prominence amid escalating trade tensions between China and the United States. The Trump administration is actively promoting pro-crypto policies, including the legalization of stablecoins. Experts suggest that this could accelerate capital flight from the yuan to digital assets if pressure on China’s currency continues to increase.
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