Chinese Authorities Sells Confiscated Cryptocurrency Privately Amid Economic Slowdown

Local Chinese authorities now sell confiscated cryptocurrency through private offshore companies, circumventing the country’s own trading ban to boost public funds amid economic challenges. Officials held approximately 15,000 Bitcoins worth $1.4 billion at the end of 2023, according to Reuters’ April 16 report.

This indirect approach highlights unclear rules and potential issues while helping to support public funds amid the Chinese economic slowdown and geopolitical tensions.

Local Authorities Exploit Digital Assets to Raise Funds Amid Regulatory Vacuum

Local Chinese authorities increasingly convert confiscated cryptocurrencies into cash for public coffers as China accumulates digital assets from criminal cases. This practice operates in a regulatory vacuum, creating inconsistent procedures that legal experts warn could foster corruption.

China holds an estimated 194,000 BTC worth approximately $16 billion and is second behind the US on the list of the largest Bitcoin nation holders, according to Bitbo.

Zhongnan University of Economics and Law professor Chen Shi has called these sales a makeshift solution that, strictly speaking, is not fully in line with China’s current ban on crypto trading, which was made in September 2021.

The issue has been exacerbated by a rise in crypto-related crime in China, ranging from online fraud to money laundering to illegal gambling.

Additionally, the state has sued over 3,000 individuals involved in crypto-related money laundering, while blockchain security firm SAFEIS reported that money from such crimes surged tenfold to $59 billion in 2023.

As stated by Reuters, Shenzhen-based lawyer Guo Zhihao noted that the central bank is better equipped to manage the situation as calls grow for the country to establish laws regulating the handling of confiscated digital assets.
He suggested that it should either sell these assets overseas or build a strategic crypto reserve.

Ru Haiyang, co-CEO at Hong Kong crypto exchange HashKey, echoed the suggestion, saying that China should seriously consider keeping forfeited Bitcoin as a strategic reserve like the US.

Creating a crypto sovereign fund in Hong Kong, where crypto trading is legal, has also been proposed.

Strategic Shifts Amid Trade Tensions and Economic Deflation

Industry observers warn that China’s tariff response could further devalue its local currency amid rising US-China trade tensions.

After peaking in early 2021, Chinese stocks have since lost $6 trillion in market cap as economic weakness deepens.

Persistent issues in the real estate and banking sectors, coupled with substantial government stimulus efforts to support a high-debt economy, have only added to market concerns.

Alternative measures, such as using cryptocurrency to protect the Yuan and support the economy, have been suggested.

Red Date Technology’s CEO, Yifan He, discussed lifting China’s crypto trading ban and positioning Hong Kong as a bridge to the global Web3 ecosystem.

Speculating that there is almost a 50% chance the country reverses its ban.