Local governments throughout China have quietly sold some 15,000 units of Bitcoin, worth about $1.25 billion, through offshore private companies amid the country’s severe economic downturn. This secret sale of confiscated cryptocurrency assets is quickly becoming a vital, albeit contentious, lifeline for local public coffers.
This move is contentious since cryptocurrency trading and exchanges are illegal in China. The country’s law enforcement agencies continued confiscating digital assets after the ban as part of their extensive campaigns against illegal gambling, money laundering, and online fraud.
By the end of 2023, China had almost 15,000 Bitcoins, making it the second-largest national Bitcoin holder globally after the United States. The assets were worth $1.4 billion; their increased value has since provided major income to underfunded city governments.
Absence of Regulatory Framework
Without standardized national guidelines, each local government handles seized crypto differently, often relying on opaque arrangements with private firms to execute sales on licensed offshore exchanges. The proceeds are then funneled back into local finance bureaus via domestic banks, helping to shore up budgets battered by declining tax revenues and rising expenditures.
The sales’ timing aligns with the financial strain faced by China’s local governments. For example, in 2023, penalty and confiscation incomes hit a record 378 billion yuan ($52 billion)—a 65% increase over five years.
Crypto-related crimes also saw a surge of over $59 billion in illicit funds last year and more than 3,000 prosecutions, adding to the pile of digital assets awaiting disposal.
This has led several cash-strapped regions to turn to selling seized Bitcoin to finance budget shortfalls.
Suggestions for Seized Bitcoin and Crypto Assets
Rather than selling, experts believe China should emulate the U.S. by holding onto forfeited Bitcoin as a strategic reserve. Additionally, they could create a sovereign crypto fund in Hong Kong, where digital asset trading is legal.
A more centralized management structure could help China maximize the value of the confiscated digital currencies.
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