China Quietly Offloads 15,000 Bitcoin Worth $1.4 Billion

Chinese authorities are facing mounting pressure to establish clear rules for handling seized cryptocurrencies, as local governments struggle with growing stockpiles of bitcoin and other tokens confiscated during criminal investigations.

Although crypto trading is banned on the mainland and digital assets are not recognized as legal property, enforcement agencies continued to seize large volumes of tokens in cases related to fraud, money laundering, and illegal gambling. With no standardized approach for disposal, local governments quietly enlisted private firms to offload the assets on offshore exchanges.

The legal ambiguity is prompting calls for reform from judges, prosecutors, lawyers, and academics. At a series of high-level seminars held in recent months, including one in January, attendees debated how to regulate and manage the confiscated tokens.

“The lack of clear guidelines could foster corruption and give lawbreakers a false sense of impunity,” said Chen Shi, a professor at Zhongnan University of Economics and Law. “Some of the current practices are not entirely in line with China’s trading ban.”

The issue has become increasingly urgent. According to blockchain security firm SAFEIS, the value of assets tied to crypto-related crimes surged tenfold in 2023 to 430.7 billion yuan ($59 billion). More than 3,000 individuals were prosecuted last year for crimes involving digital assets.

Seized Crypto Fuels Local Coffers

Local governments appear to be benefitting financially. Official budget data shows penalty and confiscation income jumped to a record 378 billion yuan last year, a 65% increase since 2018. In some cities, seized digital assets have become a key funding source, experts say.

But critics argue the process is opaque and open to abuse. Jiafenxiang, a Shenzhen-based tech firm, reportedly helped local governments in Jiangsu province sell more than 3 billion yuan worth of crypto on offshore exchanges. The proceeds were converted into yuan and deposited

Legal experts warn that relying on private companies without regulatory oversight poses risks. As such, some propose that China’s central bank or a national agency oversee seized digital assets.

China is estimated to hold around 15,000 bitcoin worth $1.4 billion, making it the 14th largest holder globally, according to crypto investment firm River.

Blockchain firm Bit Jungle argues it is legal for private companies to conduct disposals as long as they follow offshore capital rules and use licensed platforms.

Ru Haiyang, co-CEO of Hong Kong-based HashKey, suggested Beijing should emulate U.S. plans and hold forfeited bitcoin as part of a sovereign reserve. Winston Ma, a former executive at China Investment Corp, also proposed the creation of a state-run crypto fund based in Hong Kong, where trading is permitted.

“A centralized system would help maximize the value of seized cryptocurrencies,” Ma said.

Earlier in December, Binance founder Changpeng “CZ” Zhao suggested that China may adopt a strategic Bitcoin reserve, following a plan proposed by U.S. President Donald Trump.

Zhao, who grew up in China, acknowledged the unpredictability of the country’s stance on crypto, citing the government’s lack of transparency. However, he described the establishment of a Bitcoin reserve as “inevitable,” stating, “They have to do it at some point because it’s the only ‘hard’ asset.”