Recently, China's legal, financial and government departments have been intensively discussing the "disposal mechanism for seized cryptocurrencies". As cryptocurrency-related criminal cases surge, local governments' practice of supplementing their finances by selling seized digital assets has attracted widespread attention, and the lack of an existing regulatory framework has led to a chaotic disposal process, lack of transparency, and even corruption risks.
At present, local governments in China are facing an embarrassing reality in the field of cryptocurrency: although the country has completely banned cryptocurrency trading and mining since 2021, the scale of cryptocurrency seized by local governments through crackdowns on criminal activities has continued to expand. Data shows that the amount of money involved in cryptocurrency crimes in China in 2023 reached 430.7 billion yuan (about 59 billion US dollars), a 10-fold increase from 2022. The types of cases include online fraud, money laundering, illegal gambling, etc. During the same period, the national procuratorate prosecuted 3,032 people in cryptocurrency money laundering cases, a record high. The escalation of the crime model has forced law enforcement agencies to step up their crackdown. In 2023, the value of cryptocurrencies seized in various places increased by 120% year-on-year, and the number of Bitcoins held alone reached 15,000 (about 1.4 billion US dollars).
At the same time, under the pressure of economic downturn, the realization of seized assets has become an important channel for local governments to supplement their finances. In 2023, the national fines and confiscations revenue reached 378 billion yuan, an increase of 65% in five years. In some crime-prone areas such as Xuzhou and Taizhou in Jiangsu, the disposal of cryptocurrencies accounted for more than 30% of the fines and confiscations revenue.
According to the disclosure, local governments in China are working with private enterprises to sell seized cryptocurrencies in overseas markets and convert them into cash to supplement public funds. Taking a private enterprise in Shenzhen as an example, the agency has assisted local governments in selling more than 3 billion yuan of cryptocurrencies on overseas exchanges since 2018. The funds were converted into RMB through compliant channels and directly entered the local fiscal account.
However, the operation has sparked controversy due to the lack of uniform rules. This "temporary solution" is in obvious contradiction with the national ban, and local governments are in a gray area as they liquidate assets on their own without clear authorization. At the same time, although this can ease short-term fiscal pressure, it exposes a regulatory vacuum - the identification, valuation and disposal processes of seized assets vary significantly in different regions, and some grassroots courts even engage in non-standard operations of "paying debts with currency".
In addition, more than 70% of the disposal of seized assets currently relies on private enterprises. Although these institutions help solve technical operation problems, there is a risk of conflict of interest: some companies charge service commissions as high as 5%-8%, and there is a lack of effective supervision. In this regard, industry lawyers pointed out that the involvement of private enterprises in the disposal of criminal assets may lead to opaque pricing, uncontrolled capital flows, and even breed corruption problems such as "penalty instead of management" and "selective law enforcement". For example, in early 2024, a local public security bureau was investigated by the Commission for Discipline Inspection for colluding with intermediary institutions to lower asset valuations and privately divide the price difference.
At present, although Chinese law explicitly prohibits cryptocurrency transactions, it does not clearly define whether the cryptocurrency involved is legal property. The current law only defines cryptocurrency as a "special Internet commodity", which can be regarded as "virtual property" in civil cases, but is often classified as an "illegal business tool" in criminal cases. This ambiguity has led to different judicial disposal standards, and some regions have even mistakenly frozen the assets of legal investors.
As crypto crime cases continue to rise and the scale of seized assets continues to expand, the Chinese government is facing a dilemma: continue to maintain a complete ban on cryptocurrencies, or adjust policies to build a compliant, transparent and strategic crypto asset management system.
Senior prosecutors and police are reportedly discussing new rules that could change how seized cryptocurrencies are handled. This could be a major shift for China's cryptocurrency industry, especially amid rising tensions with the U.S. during Trump's second term, as he plans to relax cryptocurrency regulations and build a strategic Bitcoin reserve in the United States.
Although no changes have been guaranteed, experts from the Supreme People's Court, the Ministry of Public Security and legal scholars reached a consensus at a regulatory seminar in early 2025: China needs to formally recognize cryptocurrencies and develop clear procedures for handling seized digital currencies. Specific suggestions include:
Legal attribute definition: Adding a "digital asset" clause to the (Civil Code) recognizes the property rights of cryptocurrencies and provides a legal basis for judicial disposal. For example, the Baoshan Court in Shanghai once supported a request for the return of Bitcoin through a civil judgment, showing that judicial practice has made a breakthrough;
Centralized management: Led by the People's Bank of China or the State Financial Regulatory Bureau, a unified national cryptocurrency custody platform will be established to achieve standardized processes for asset registration, valuation, and auction. Or, learn from the US plan and include seized assets in the national foreign exchange reserve system, which will not only resolve regulatory conflicts but also enhance financial stability. After all, China currently holds about 194,000 bitcoins, worth about $16 billion, making it the world's second largest bitcoin holder.
Choose the Chinese path: China can set up a sovereign crypto fund in Hong Kong and use the local mature financial infrastructure to achieve compliance management and value-added operations of assets. This dual-track system of "domestic law enforcement and overseas disposal" can not only circumvent mainland regulatory restrictions, but also connect with the international financial market;
Technology empowers supervision: Use blockchain traceability technology to establish a "digital asset blacklist" to track the flow of seized assets in real time and prevent secondary circulation. The "on-chain supervision system for assets involved in the case" piloted in 2024 has achieved dynamic monitoring of more than 100,000 bitcoins.
It can be seen that China's attitude towards cryptocurrencies may be shifting from "total ban" to "classified governance". Although the 2021 document of ten ministries and commissions explicitly prohibits cryptocurrency transactions, this seminar sent out two major signals: First, recognize the attributes of assets: no longer simply regard cryptocurrencies as "illegal financial instruments", but as "special property involved in the case" and include them in the legal track. This shift lays the groundwork for possible compliance pilots in the future (such as institutional custody and cross-border asset transfers); second, balance security and efficiency: explore market-oriented disposal paths for seized assets under the premise of preventing financial risks. For example, some assets are allowed to be used for "anti-money laundering funds" or public services rather than simply cashing them out.
In general, China's exploration of the disposal mechanism for seized cryptocurrencies is essentially a microcosm of regulatory innovation in the digital economy era. When technological innovation conflicts with institutional lag, how to find a balance between risk prevention and control and value utilization has become a common issue faced by the world. From the "stopgap measures" of local governments to the "institutional reconstruction" at the central level, this discussion will not only reshape the underlying logic of China's cryptocurrency regulation, but may also provide a "Chinese solution" for global digital asset governance.
As the regulatory framework becomes clearer, the role of cryptocurrency in China is changing from "illegal financial instruments" to "specially regulated assets". In the future, when seized Bitcoin is included in the national strategic reserve and blockchain technology is used for asset tracking, we may witness a more inclusive regulatory system - one that not only adheres to the bottom line of financial security, but also leaves necessary space for technological innovation. This institutional reform, which began with "gray income generation", may eventually become an important milestone in the modernization of China's digital financial governance.
