Despite China’s National Ban, Local Chinese Governments Use Private Firms to Sell Seized Crypto, Prompting Legal Debate

China Struggles With Bitcoin Seizures As Crypto Crime Surges

Local governments across China are sitting on billions in seized cryptocurrencies, and officials are now facing a growing dilemma—how to manage and dispose of these digital assets without violating the country's own ban on crypto trading.

Although cryptocurrencies like Bitcoin are banned as legal tender and assets in mainland China, they are increasingly showing up in criminal cases involving fraud, money laundering, and illegal gambling.

In 2023 alone, Chinese authorities prosecuted 3,032 people for crypto-related money laundering.

According to blockchain security firm SAFEIS, funds tied to such crimes soared tenfold last year to 430.7 billion yuan ($59 billion).

China is reportedly holding around 194,000 BTC, worth over $16 billion, ranking second among countries after the United States.

On the other hand, in January, according to CEO of CryptoQuant, Ki Young J, he believes China has sold most of its bitcoins.

However, the exact amount remains unclear, as the true figure is not publicly disclosed.

Courts And Lawyers Call For Clear Rules On Crypto Disposal

Lawyers, judges, and police officials are now calling for proper regulation to address the gap.

Professor Chen Shi from Zhongnan University of Economics and Law, voiced out,

“It’s a makeshift solution that, strictly speaking, is not fully in line with China’s current ban on crypto trading.”

He was among those at a January seminar where officials debated how to handle the mounting crypto stockpile.

At the centre of the debate is the lack of official guidance on whether cryptocurrencies should be recognised as property, and how to safely and legally liquidate them after seizures.

Without national rules, decisions are often left to local officials who work with private firms to sell crypto assets on offshore exchanges.

Private Firms Profit From Government Partnerships

One such company, Jiafenxiang, based in Shenzhen, has reportedly sold more than 3 billion yuan worth of cryptocurrencies since 2018 on behalf of local governments including Xuzhou, Hua’an and Taizhou.

Court documents show that dollar proceeds from these sales are converted into yuan through local banks and then deposited into local government accounts.

These transactions help boost local finances.

In 2023, penalty and confiscation revenues hit a record 378 billion yuan ($51.44 billion) — a 65% jump over the last five years.

For some local authorities, seized crypto has become a critical source of income amid China’s economic slowdown.

Yet lawyers warn that the current system is unsustainable.

Liu Honglin, a lawyer advising cities on crypto issues, said,

“There are no rules regulating private companies that help local governments with the disposal, something that needs to change.”

Should China Build A Bitcoin Reserve Like The US?

With Donald Trump in his second term as US president and reportedly planning a national bitcoin reserve, some Chinese experts are floating a similar idea.

Guo Zhihao, a senior partner at Beijing Yingke Law Firm, believes the People’s Bank of China is best suited to handle seized tokens, either by selling them abroad or building a reserve.

Guo said at the same seminar,

“China’s central bank is better positioned.”

People's Bank of China

Others, like Ru Haiyang of HashKey in Hong Kong, suggest a centralised disposal model.

He argues that maintaining forfeited coins as part of a national reserve would improve asset management.

NYU Law adjunct professor Winston Ma also supports this, saying a sovereign crypto fund in Hong Kong could help “maximise the value of the seized cryptocurrencies.”

Surging Seizures Push China Into Top Global Crypto Holders

By the end of 2024, Chinese local governments collectively held around 15,000 bitcoins—worth roughly $1.4 billion.

This places China among the top 15 largest holders of the cryptocurrency worldwide, according to Bitcoin investment firm River.

Despite the official ban, this accumulation shows no sign of slowing as crypto continues to play a role in criminal activities and enforcement actions.

As more virtual assets are confiscated, the urgency for clear, centralised regulation is growing.

Will China formalise a system to manage and perhaps even retain these digital tokens, or continue relying on a patchwork of unofficial methods that blur the line between enforcement and contradiction?