A recent report by Reuters indicates that China might be considering selling off significant amounts of confiscated Bitcoin, which could lead to downward pressure on BTC prices. Citing sources, Reuters reveals that local Chinese governments have been collaborating with private firms to convert seized Bitcoin into cash, aiming to strengthen public finances, which are under pressure due to a slowing economy.
Chinese Authorities May Liquidate 15,000 Bitcoin
The Chinese prohibition on Bitcoin and cryptocurrency trading clashes with these liquidation initiatives, causing legal experts, senior judges, and law enforcement leaders to advocate for clearer regulations. Reuters references Chen Shi, a professor at the Zhongnan University of Economics and Law, who characterized these sales as “a temporary fix that is not entirely compatible with China’s ongoing ban on crypto trading.” Chen participated in a seminar this year with various government officials to discuss potential regulatory changes, highlighting the urgent need for a consistent framework for managing confiscated digital currencies.
The current opacity in China’s handling of seized cryptocurrencies has raised concerns about corruption and has potentially encouraged further cryptocurrency-related crimes. The Reuters report points out a troubling increase in such activities: money linked to Bitcoin and crypto-related crimes ballooned to 430.7 billion yuan (approximately $59 billion) in 2023, marking a tenfold rise according to blockchain security firm SAFEIS. Additionally, the country’s top procurator noted that 3,032 individuals were prosecuted for Bitcoin and crypto-related money laundering last year.
While Beijing prohibits cryptocurrency trading and does not acknowledge digital tokens as legal tender or valid assets, the Reuters investigation uncovers a contradictory reality where local governments depend on revenues from these enforced liquidations. Jiafenxiang, a tech firm based in Shenzhen, reportedly liquidated cryptocurrencies valued at over 3 billion yuan in offshore markets for several municipal authorities in eastern Jiangsu province. The US dollar gains from these transactions were subsequently swapped for yuan and sent to local financial departments.
Discussions regarding potential reforms are taking place amid escalating tensions between China and the US, particularly during Donald Trump’s second presidency, characterized by the former president’s push to deregulate cryptocurrencies and establish a strategic Bitcoin reserve. Guo Zhihao, a Shenzhen-based attorney, believes that China’s central bank should contemplate a similar approach for seized Bitcoin and crypto assets, suggesting that “China’s central bank is in a better position to manage the cryptocurrencies, and should either sell them internationally or create a crypto reserve from confiscated tokens akin to Trump’s strategy.”
Other legal analysts, like Sun Jun from Shanghai Landing Law Offices, see lucrative prospects for private firms aiding local governments in liquidating substantial crypto assets. However, Sun emphasizes the necessity of strong guidelines and vetting processes, urging China to clarify the legal status of these tokens, establish a centralized disposal system, and regulate the involved entities. According to Winston Ma, an adjunct professor at NYU Law School and former managing director of China Investment Corp, a more centralized strategy would enable the country to “maximize the value of the seized cryptocurrencies,” possibly through a crypto sovereign fund in Hong Kong, where digital trading is allowed.
The prospect of Beijing retaining some of these seized assets has also sparked broader speculation, especially since local governments in China are estimated to collectively hold around 15,000 Bitcoins, positioning the Chinese state as one of the largest institutional Bitcoin holders globally.
Observers note that a portion of China’s crypto holdings likely stems from the crackdown on illegal activities, including the notorious PlusToken Ponzi scheme, which resulted in the seizure of 194,775 Bitcoins. Crypto intelligence firm Arkham reports that these tokens were transferred to the national treasury in November 2020, though it remains uncertain whether these holdings have been sold or are still retained by China.
As of the latest report, BTC was valued at $84,071.
