Crypto Chaos in China: Provinces Struggle with Legal Void as Seized Digital Assets Pile Up

China's provincial governments are drowning in a sea of seized crypto—with no clear legal framework to dispose of it. The regulatory vacuum leaves billions in digital assets gathering dust while bureaucrats scramble for solutions.

Who's holding the bag?

Local officials face a modern-day Midas problem: mountains of Bitcoin, Ethereum, and stablecoins seized from criminal cases—but no way to legally liquidate or redistribute them. Some provinces reportedly store hardware wallets in evidence rooms like confiscated cash, except this 'cash' fluctuates 20% in a week.

The irony? While Beijing maintains its crypto ban, provincial authorities now accidentally rank among China's largest crypto custodians. Talk about unintended consequences.

Meanwhile, as the assets depreciate (or moon) in storage, lawyers debate whether burning the keys would constitute destruction of public property. Because nothing says 'financial innovation' like debating whether deleting a private key is a felony.

One thing's certain: until the central government provides guidance, these seized stashes will remain in limbo—the ultimate HODL position enforced by red tape.

Henan Province Says Local Legislation Unsuitable

The Congress of Henan Province, a central Chinese province south of Beijing with nearly 100 million residents, released a report reviewing its “Draft Regulations on the Management of Assets Involved in Cases.” The province’s legal affairs committee acknowledged that VIRTUAL currencies have property attributes and constitute case-related assets, a consensus already established in judicial practice.

However, they noted that China’s comprehensive ban on crypto trading eliminated all legal trading platforms. Authorities nationwide continue exploring disposal methods. The committee concluded that local legislation is inappropriate for managing this new type of seized asset.

They concluded that the Ministry of Public Security is researching relevant cryptocurrency regulations. They urged the central government to handle the matter to ensure policy consistency. This would avoid conflicts on national financial security issues.

“Management of this new type of case-related property is more suitable to be uniformly regulated at the national level.”

Legal and Technical Complexities

Henan’s cautious stance is rooted in two key challenges. First, the legal and technical complexities of managing digital assets—from secure custody and valuation to liquidation—are immense. Moreover, widespread regulatory concerns across China validate this view. Authorities in numerous provinces, including Henan, frequently warn against fraudulent schemes exploiting stablecoins. These illicit activities range from illegal fundraising to money laundering and underscore the high stakes involved.

Second, a significant legal vacuum exists nationwide following China’s 2021 ban on crypto trading. The ban pushed exchanges overseas and complicated asset disposal for law enforcement. A Beijing judge recently confirmed this dilemma, noting that courts lack a clear legal basis for executing such disposals, leading to inconsistent practices.

Interestingly, local approaches are diverging in this void. In contrast, Beijing’s law enforcement has pioneered a complex, cross-border disposal channel, liquidating assets through licensed Hong Kong exchanges.

Beijing police have successfully tested a sophisticated disposal mechanism. They entrust seized crypto to the Beijing Stock Exchange, which works with professional service providers for detection, receipt, and transfer operations. The assets are sold through compliant licensed Hong Kong exchanges, with proceeds converted to yuan after foreign exchange approval and deposited into police accounts for legal confiscation or victim restitution.

The contrast between Henan’s cautious approach and Beijing’s innovative workaround illustrates that while local solutions are emerging, unified national rules WOULD make the process more predictable, transparent, and efficient across China’s vast territory.