Chinese Local Governments Quietly Sell Seized Crypto to Shore Up Public Finances, Stirring Market and Legal Debate
Local governments across China are quietly selling off vast amounts of seized cryptocurrencies, including Bitcoin, despite the country’s strict ban on crypto trading. This controversial practice, revealed by court and transaction documents, is emerging as a crucial, if unofficial, tool to replenish public coffers strained by a slowing economy.
Seized Crypto Becomes Lifeline for Public Budgets
Facing mounting fiscal pressures, local authorities have turned to private companies to liquidate confiscated digital assets, mainly in offshore markets. The proceeds—first converted to U.S. dollars, then into yuan—are funneled back into regional finance bureaus to support public spending. For example, Shenzhen-based Jiafenxiang has facilitated sales exceeding 3 billion yuan ($408 million) on behalf of several governments in Jiangsu province since 2018.
By the end of 2023, local governments collectively held about 15,000 Bitcoin, worth roughly $1.4 billion. Nationwide, China’s total Bitcoin holdings are estimated at 194,000 BTC, valued at approximately $16 billion, making it the world’s second-largest governmental Bitcoin holder after the United States.
Legal Gray Zones and Risks of Corruption
This workaround, while lucrative, exists in a legal gray area. China maintains a blanket ban on cryptocurrency trading and mining, but the lack of clear national guidelines for handling seized digital assets has led to inconsistent and opaque local practices. Legal experts warn that such ambiguity could foster corruption and undermine the rule of law.
“These sales are a makeshift solution that, strictly speaking, is not fully in line with China’s current ban on crypto trading,” said Professor Chen Shi of Zhongnan University of Economics and Law.
Market Impact: Volatility and Investor Jitters
News of the sell-offs has sent shockwaves through global crypto markets. When China’s National Administration of Financial Regulation confirmed the holdings and ongoing sales, Bitcoin’s price plunged 5.2% within an hour, from $68,320 to $64,750, and trading volumes spiked by 120%. The sudden influx of Bitcoin onto the market triggered a flurry of stop-loss orders, benefiting short sellers and causing Bitcoin’s market dominance to slip as traders shifted to altcoins.
Crime, Prosecution, and the Crypto Conundrum
The surge in liquidations is partly a response to a dramatic rise in crypto-related crime. In 2023 alone, illicit crypto activities in China ballooned tenfold to nearly 431 billion yuan ($59 billion), with over 3,000 people prosecuted for offenses ranging from fraud to money laundering and illegal gambling. Asset seizures and penalties have become a record source of government revenue, further incentivizing the sell-off strategy.
Calls for Reform and Strategic Reserves
The current ad hoc system has prompted calls from academics and industry insiders for more centralized, transparent management of seized digital assets. Some suggest that China could emulate the U.S. by holding confiscated Bitcoin as a strategic reserve or even establishing a sovereign crypto fund in regions like Hong Kong, where trading is legal.
A Tense Backdrop: U.S.-China Rivalry and Currency Fears
The debate unfolds amid intensifying U.S.-China trade tensions and speculation that China’s actions could influence global crypto flows and local currency stability. Observers warn that further large-scale liquidations or regulatory shifts could trigger renewed volatility in both the crypto and traditional financial markets.
For now, as local governments continue to quietly cash in on confiscated crypto, China’s uneasy relationship with digital assets remains a flashpoint for legal, financial, and geopolitical uncertainty.