China Discreetly Offloads Confiscated Cryptocurrency Holdings Via Third-Party Entities

Recent reports indicate that Chinese authorities have been systematically liquidating seized digital assets through intermediary firms, maintaining a low-profile approach to avoid market disruption. This strategy involves selling cryptocurrencies obtained from criminal investigations and enforcement actions via private sector partners rather than through public auctions or direct market sales. The move reflects China’s nuanced stance on crypto assets - maintaining strict regulatory prohibitions while pragmatically managing seized holdings. Market analysts suggest this approach allows for controlled divestment without signaling official endorsement of cryptocurrency trading. The liquidation process appears carefully structured to minimize price impact, with sales reportedly occurring gradually across multiple exchanges and OTC desks. This development comes amid China’s broader crackdown on cryptocurrency-related activities, which has intensified since 2021 but now shows operational flexibility in asset disposition strategies.

China bypasses its own laws to sell its seized cryptos

Under the radar of national regulations, Chinese local authorities have found a way out: entrusting private companies with the sale of seized cryptos.

Jiafenxiang, a Shenzhen-based company, has reportedly converted more than 3 billion yuan into cash since 2018. These transactions, carried out through offshore platforms, circumvent the ban while feeding local budgets. A logic of financial survival as the economic slowdown weighs heavily.

“This practice is a legal patch”, emphasizes Chen Shi, professor at Zhongnan University. In the absence of a clear framework, each region improvises. Some sell through foreign crypto exchanges, others store while waiting for a hypothetical legalization.

This disparity fuels risks of corruption and arbitrariness, while offering offenders grounds for contestation. “The state bans trading but uses it behind the scenes,” quips Guo Zhihao, a specialized lawyer.

Revenues, converted to yuan through local banks, go directly into public coffers. In Hua’an or Xuzhou, these funds have helped offset growing deficits. A lucrative mechanism: according to River, local governments hold 15,000 bitcoins ($1.4 billion), making China a leading clandestine crypto player.

While these sales provide short-term relief, they also expose Beijing to a strategic dilemma: how to control a market that the state inadvertently feeds?

China debates rules for managing seized cryptocurrencies

The surge in crypto-related offenses—fraud, money laundering, illegal gambling—has paradoxically boosted local finances.

In 2023, the amounts involved reached 430.7 billion yuan, according to SAFEIS. Fines and confiscations followed, generating 378 billion yuan in revenue, a +65% increase over five years. “These assets have become a budgetary pillar in some cities,” confirms Liu Honglin, a lawyer advising local authorities.

Faced with urgency, judges and experts advocate for a unified framework. During seminars, proposals emerge: legal recognition of cryptos as assets, centralized sales by the central bank, or creation of a strategic reserve, akin to Trump’s projects. “Centralized management would maximize their value,” argues Winston Ma, former executive at China Investment Corp. Hong Kong, where trading is legal, could serve as a hub, according to Ru Haiyang from HashKey.

Behind these debates lies a Sino-American rivalry. While Trump bets on deregulation and Bitcoin reserves, Beijing hesitates between repression and opportunistic exploitation. “China cannot ignore the geoeconomic value of cryptos,” analyzes Sun Jun, a lawyer in Shanghai. A silent race is underway: to control these assets without legitimizing their use, in a fragile balance between sovereignty and realpolitik.

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