China Quietly Sells Off Its Seized Cryptocurrencies Through Private Companies

While Beijing maintains a strict ban on cryptocurrencies, a paradoxical reality emerges: local governments discreetly sell seized digital assets, fueling their public coffers. Between opacity and financial urgency, this practice reveals the cracks in a system torn between repression and economic pragmatism. A tangle that rekindles the debate on the legal framework of these assets, in a geopolitical context where China watches American crypto advances with suspicion.

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.