China Liquidates Confiscated Cryptocurrencies to Bolster State Treasury

In a landmark move, Chinese authorities have begun monetizing seized digital assets, converting them into fiat currency to support national budgetary needs. This initiative marks a significant step in the government’s strategy to regulate the crypto sector while leveraging its financial potential. The process involves auctioning confiscated cryptocurrencies, including Bitcoin and Ethereum, through state-sanctioned platforms. Analysts suggest this approach could set a precedent for other nations grappling with crypto-related seizures. The funds generated are earmarked for public infrastructure and social welfare programs, reflecting Beijing’s broader economic priorities.

• In the face of a strict crypto ban, Chinese local governments are now legalizing the sale of the confiscated digital assets to help public budgets, raising legal and ethical issues.

• China has one of the largest government-owned Bitcoin reserves in the world, but its methods of selling them contradict crypto trading rules.

• Centralized management or strategic holding of seized crypto assets is what experts and industry leaders suggest is needed for transparency and legal compliance.

Although China has banned crypto trading and its local governments haven’t disclosed any plans to initiate crypto activity, they are reportedly still selling off confiscated cryptocurrency to raise money for public spending.

Reuters reported on April 16 that private companies have been working with these authorities to convert seized digital assets into cash by selling the digital assets on offshore markets. The money raised is then used to support local government budgets.

The practice in China has caught the attention of industry experts because the Asian nation currently does not have clear laws regarding what to do with seized cryptocurrencies. For this reason, there are now rumors that this action might leave open the possibility for corruption or misuse of funds since there is no transparency or oversight.

China’s Bitcoin Holdings Clash With Crypto Ban

When 2023 came to an end, as much as 15,000 Bitcoins were being held by local Chinese authorities, which were valued at roughly $1.4 billion. Currently, China is estimated to have around 194,000 Bitcoins (BTC) that are roughly valued at $16 billion, making it the second biggest holder of Bitcoin among governments after the United States.

Some experts believe China’s current approach of selling crypto is not entirely legal under China’s crypto ban. “The sales help to raise funds, but they are technically against China’s ban on crypto trading,”  Professor Chen Shi of Zhongnan University of Economics and Law told Reuters.

Proposed Strategies for Managing Seized Crypto Assets

Experts suggest that China should consider what steps to manage seized crypto tokens. An idea might be to let the central bank simply perform the process itself and sell the assets abroad or even use them as a government reserve.

But not everyone in the industry agrees, for example Ru Haiyang (co-CEO of the Hong Kong based crypto exchange HashKey) believes that China should hold onto the crypto that has been seized, in a similar manner as US President Donald Trump does.