China’s growing stockpile of cryptocurrencies seized in criminal cases is intensifying a national debate over how to legally and transparently manage these digital assets. As criminal crypto holdings accumulate, courts, financial regulators, and legal experts are pressing for a standardized legal framework.
The lack of clear laws on how to deal with confiscated cryptocurrencies—such as Bitcoin and other tokens banned from trading in mainland China—has led to inconsistent and opaque practices. Legal professionals warn that the absence of regulation may inadvertently encourage criminal behavior and open the door to corruption.
Discussions involving senior judges, police, and lawyers are ongoing, with many anticipating that regulatory changes could soon reshape how China handles seized digital assets. These developments are unfolding during a period of heightened Sino-U.S. tensions, coinciding with President Donald Trump’s second term and his push to deregulate cryptocurrencies and create a U.S. Bitcoin reserve.
Despite the nationwide ban on crypto trading and the refusal to recognize digital tokens as legal tender or assets, local Chinese governments have turned to private companies to sell confiscated tokens. These sales aim to convert digital assets into fiat currency to support local budgets strained by a slowing economy, according to court records and transaction documents reviewed by Reuters.
“This is a makeshift solution that doesn’t fully align with China’s crypto ban,” said Professor Chen Shi from Zhongnan University of Economics and Law. Chen and other experts who attended a January seminar on the issue are advocating for tighter regulation and centralized oversight.
Lawyer Guo Zhihao, a senior partner at Beijing Yingke Law Firm, said there’s a growing contradiction between China’s crypto ban and local authorities’ need to liquidate seized crypto holdings. He proposed that the central bank manage these assets—either by selling them overseas or using them to build a national crypto reserve, echoing Trump’s strategy.
While no policy changes have been confirmed, experts say consensus is emerging on the need for judicial recognition of crypto as a financial asset and a uniform process for handling confiscations.
Criminal Crypto Cases Surge in China
The urgency of resolving this legal gray area is underscored by a dramatic increase in crypto-related crimes. In 2023 alone, funds linked to such crimes soared tenfold to 430.7 billion yuan ($59 billion), according to blockchain security firm SAFEIS. Over 3,000 individuals were prosecuted for crypto-related money laundering last year.
This rise in criminal activity has paralleled a spike in local governments’ confiscation revenues, which hit a record 378 billion yuan in 2023—a 65% increase over five years. Lawyers note that in some cities, cryptocurrencies now play a major role in law enforcement seizures, particularly in cases involving fraud, illegal gambling, and cross-border money laundering.
However, the current lack of oversight for private firms assisting with these disposals has raised red flags. Liu Honglin, an attorney advising local governments, emphasized the need to regulate these third-party vendors.
One such firm, Jiafenxiang, reportedly sold over 3 billion yuan worth of crypto assets in offshore markets on behalf of local governments in cities like Xuzhou, Hua’an, and Taizhou. These proceeds were converted into yuan through banks and funneled into local finance bureaus.
Toward a Centralized Crypto Disposal Strategy
Industry experts believe formalizing a disposal framework could turn these seizures into a strategic advantage. Blockchain firm Bit Jungle supports private-sector involvement—if conducted through secure channels and licensed offshore exchanges.
Lawyer Sun Jun from Shanghai Landing Law Offices argued for defining crypto’s legal status, establishing a national disposal system, and licensing disposal agents to ensure transparency and asset protection.
Ru Haiyang, co-CEO of HashKey, Hong Kong’s largest licensed crypto exchange, suggested China might follow the U.S. and treat seized crypto as part of a strategic reserve. Meanwhile, NYU Law professor and former China Investment Corp executive Winston Ma proposed creating a sovereign crypto fund in Hong Kong to manage assets centrally and maximize their value.
As China debates a legal framework for handling illicit crypto holdings, the stakes are growing. With billions in seized digital assets and a legal vacuum, experts agree that reform is not only necessary—but inevitable.
