China is grappling with what to do about a growing stockpile of digital currencies confiscated in criminal cases. With cryptocurrency trading banned across the country, local governments are stuck figuring out how to deal with seized assets like Bitcoin. The lack of clear national rules on the matter has led to a mix of ad-hoc responses, which some legal experts warn could lead to shady practices and undermine trust in the system.
Attorneys, judges, and law enforcement are now pushing for policy updates to bring consistency to how these digital coins are handled. If successful, such changes could significantly alter the way crypto is managed in China, especially as the conversation unfolds amid strained U.S.-China relations during Donald Trump’s second term, a time when he’s also advocating for looser crypto regulations and building a national Bitcoin reserve.
Although cryptocurrency isn’t recognized as money or legal property in China, some local authorities have turned to private firms to convert confiscated coins into cash. This money then helps fund local budgets, which are under pressure due to the slowing economy. However, these practices sit in a legal gray area. Experts point out that while this workaround helps governments financially, it doesn’t fully align with the existing crypto ban.
Guo Zhihao, a lawyer from Shenzhen, noted that there’s a contradiction: crypto trading is illegal, but authorities still need to sell these assets. He believes the People’s Bank of China should take charge of the process, possibly even holding seized coins in reserve, similar to Trump’s proposed U.S. strategy.
Several seminars have been held to brainstorm ideas, but nothing has been officially adopted yet. Still, legal experts and market insiders agree on one thing: the government needs to formally recognize digital assets and create clear procedures for handling them.
Criminal activity involving crypto is booming. In 2023, cases linked to fraud, gambling, and money laundering jumped dramatically, with over 3,000 people prosecuted and crypto-related crimes reaching $59 billion (430.7 billion yuan). As enforcement actions increase, the financial returns from confiscated assets have also surged.
Some cities now heavily rely on digital coin disposals to boost local revenue. However, there are no regulations for the private companies helping governments manage this process. One such company, Jiafenxiang, has moved billions in crypto for various cities, converting it offshore before channeling funds back through Chinese banks.
While the business of crypto liquidation is thriving, experts say the system needs an overhaul. Suggestions include defining the legal status of digital assets, creating an official disposal agency, and vetting third-party service providers. Others argue that centralizing the process—perhaps by forming a crypto reserve or sovereign fund—would help China extract maximum value from the seized tokens.
As the authorities in China work out how to deal with the digital assets they have seized, reforms could eventually be made that open market opportunities for numerous international firms like Canaan Inc. (NASDAQ: CAN).
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