China’s Regulatory Challenges with Seized Cryptocurrency Assets
Date: April 16, 2025
By: Denis Omelchenko
Edited by: Dorian Batycka
Despite its strict ban on cryptocurrency trading, China finds itself navigating a complex situation concerning seized digital assets. A recent report from Reuters reveals that local governments are increasingly relying on private firms to convert these seized cryptocurrencies into cash, highlighting a regulatory gap that warrants attention.
Growing Revenue from Seized Crypto
As illegal transactions contribute to a rising inventory of confiscated cryptocurrencies, Chinese authorities are looking beyond their legal frameworks to manage these assets. Local governments have turned to the services of private firms to facilitate the liquidation of seized digital assets, which could help replenish their coffers in an otherwise constrained financial landscape.
According to Chen Shi, a professor at the Zhongnan University of Economics and Law, these disposals are a "makeshift solution" that conflicts with the existing ban on cryptocurrency trading. He emphasized the need for stronger oversight as incidents related to crypto crime continue to escalate.
Conflicts in Regulation
Guo Zhihao, a lawyer associated with the Beijing Yingke Law Firm, pointed out the inherent conflict between the central government’s prohibition of crypto trading and local authorities’ pressing need to manage and liquidate these digital currencies. He argued that the People’s Bank of China (PBOC), the nation’s central bank, should take a more active role in this arena. Guo suggested that the PBOC could either sell the seized cryptocurrencies overseas or create a reserve, akin to proposals made by other international leaders.
In response to these challenges, blockchain service provider Bit Jungle stated that while private companies may play a role in disposing of cryptocurrencies, they must do so with caution—ensuring the protection of assets, utilizing licensed offshore exchanges, and adhering to capital controls.
A Lucrative Market Draws Interest
Sun Jun, a crypto-focused lawyer and senior partner at Shanghai Landing Law Offices, highlighted the growing interest in the crypto disposal market, labeling it a “highly profitable business” that is attracting a wider range of participants. He urged the government to clarify the legal status of virtual currencies, establish a standardized disposal process, and carefully vet the companies involved in this burgeoning sector.
China initiated a crackdown on cryptocurrency trading by shutting down local exchanges in 2017, a move that eliminated much of the speculative market that once dominated global Bitcoin trading. Later, in September 2021, the government took a firmer stance by instituting a comprehensive ban on all crypto trades, further complicating the landscape for dealing with seized assets.
Conclusion
With a growing inventory of seized cryptocurrencies and local governments actively seeking to convert these assets to cash via private firms, it is evident that China faces significant regulatory challenges. As the situation evolves, the need for clearer guidelines and oversight in the management of digital assets will become increasingly critical to align local actions with national policy. Ensuring that frameworks are established could help mitigate the risks posed by illegal crypto activities while providing local governments with needed resources.
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