Local governments in China are seeking to handle confiscated cryptocurrencies amid challenges posed by domestic cryptocurrency transaction and exchange bans. The lack of regulations on handling confiscated cryptocurrencies has led to "inconsistent and opaque" methods, raising concerns about potential corruption. Some local governments are using private companies to sell cryptocurrencies in foreign markets in exchange for cash, helping to increase public budget revenues.
By the end of 2023, local governments in China had held approximately 15,000 BTC, valued at $1.4 billion, becoming a significant source of income. China currently holds around 194,000 BTC, equivalent to about $16 billion, ranking second after the United States in Bitcoin holdings.
Professor Chen Shi from the University of Economics and Law believes these sales are a "stopgap solution" not truly compatible with China's current ban. The situation is exacerbated by increasing cryptocurrency-related crimes, from online fraud to money laundering and illegal gambling. It is known that in 2024, the state has prosecuted over 3,000 people involved in cryptocurrency money laundering.
Shenzhen lawyer Guo Zhihao suggests that the central bank is better positioned to handle confiscated digital assets and should sell them overseas or build cryptocurrency reserves. Ru Haiyang, co-CEO of the HashKey cryptocurrency exchange in Hong Kong, also proposes that China should retain confiscated Bitcoin as a strategic reserve, similar to what US President Donald Trump did.
Establishing a sovereign cryptocurrency investment fund in Hong Kong, where cryptocurrency trading is accepted, has also been proposed. This issue becomes prominent amid increasing US-China trade tensions, with the US planning to implement new stablecoin provisions and promote cryptocurrency industry development.
Many industry observers have warned that China's tax response could lead to currency depreciation and accelerate capital flows towards cryptocurrencies.
