Local governments sell seized cryptocurrencies to increase public funds! Is China considering new regulations for cryptocurrencies?

Recently, Chinese legal, financial, and government departments have been intensively discussing the “Cryptocurrency Seizure and Disposal Mechanism.” As cases related to cryptocurrency crimes surge, local governments’ practice of selling seized digital assets to supplement public finances has attracted widespread attention. Moreover, the lack of an existing regulatory framework has led to chaotic disposal processes, insufficient transparency, and even the emergence of corruption risks.
Currently, Chinese local governments face an awkward reality in the cryptocurrency field: despite the national ban on cryptocurrency trading and mining since 2021, the scale of cryptocurrencies seized through criminal crackdowns continues to grow. Data shows that in 2023, the amount involved in cryptocurrency-related crimes in China reached 430.7 billion yuan (about $59 billion), a tenfold increase from 2022. Cases cover online fraud, money laundering, illegal gambling, and more. During the same period, national prosecutors prosecuted 3,032 individuals for cryptocurrency money laundering, setting a new record. The upgrading of criminal methods has forced law enforcement to intensify efforts, with the value of seized cryptocurrencies increasing by 120% year-on-year in 2023, and just Bitcoin holdings reaching 15k coins (about $1.4 billion).
At the same time, under economic downward pressure, asset liquidation from seizures has become an important channel for local governments to supplement finances. In 2023, nationwide fines and confiscations totaled 378 billion yuan, a 65% increase over five years. In high-crime areas such as Xuzhou and Taizhou in Jiangsu Province, cryptocurrency disposal income accounts for over 30% of confiscation revenue.

According to disclosures, Chinese local governments are collaborating with private enterprises to sell seized cryptocurrencies on overseas markets, converting them into cash to supplement public funds. For example, a private company in Shenzhen has assisted local governments since 2018 in selling over 3 billion yuan worth of cryptocurrencies on foreign exchanges. The funds are converted into RMB through compliant channels and directly enter local government accounts.
However, this operation has sparked controversy due to the lack of unified rules. This “temporary solution” conflicts with national bans, as local governments monetize assets without explicit authorization, placing them in a gray area. While it can alleviate short-term fiscal pressure, it exposes a regulatory vacuum—different regions have significant discrepancies in asset identification, valuation, and disposal processes, with some grassroots courts even engaging in non-standard practices like “debt-for-coin” exchanges.
Furthermore, over 70% of seized assets are currently disposed of by private enterprises. While these organizations assist with technical operations, conflicts of interest pose risks: some charge service fees as high as 5%-8%, and lack effective regulation. Industry lawyers point out that private sector involvement in criminal asset disposal may lead to opaque pricing, uncontrolled fund flows, and even foster corruption issues like “penalty in lieu of custody” or “selective enforcement.” For example, early 2024, a local police bureau was investigated by disciplinary authorities for colluding with intermediaries to undervalue assets and privately split the difference.
Currently, although Chinese law explicitly prohibits cryptocurrency trading, it does not clearly define whether “cryptocurrencies involved in cases” are considered legal property. Existing laws only define cryptocurrencies as “special internet commodities,” which can be regarded as “virtual property” in civil cases but are often classified as “illegal business tools” in criminal cases. This ambiguity leads to inconsistent judicial standards—some regions even mistakenly freeze legitimate investors’ assets.
As cryptocurrency crime cases continue to rise and the scale of seized assets expands, the Chinese government faces a dilemma: continue to uphold the total ban on cryptocurrencies or adjust policies to build a compliant, transparent, and strategically significant digital asset management system.

It is reported that senior prosecutors and police are discussing new regulations that could change the handling of seized cryptocurrencies. This may mark a major shift in China’s cryptocurrency industry, especially amid escalating US-China tensions during Trump’s second term, as Trump plans to relax crypto regulations and establish a strategic Bitcoin reserve in the US.
Although no guarantees of change have been made, at a regulatory seminar in early 2025, experts from the Supreme Court, Ministry of Public Security, and legal scholars reached a consensus: China needs to formally recognize cryptocurrencies and establish clear procedures for handling seized digital currencies. Specific suggestions include:
Legal attribute definition: adding a “Digital Assets” clause to the Civil Code to recognize the property rights of cryptocurrencies, providing legal grounds for judicial disposal. For example, the Shanghai Baoshan Court has previously supported Bitcoin restitution requests through civil judgments, demonstrating that judicial practice has already made breakthroughs.
Centralized management: led by the People’s Bank of China or the State Financial Regulatory Administration, establishing a nationwide unified custody platform for involved cryptocurrencies, standardizing asset registration, valuation, and auction processes. Alternatively, drawing on the US plan, seized assets could be incorporated into the national foreign exchange reserve system, resolving regulatory conflicts and enhancing financial stability. After all, China currently holds about 194k Bitcoin, worth approximately $16 billion, making it the second-largest Bitcoin holder globally.
Choosing the Chinese approach: establishing a sovereign crypto fund in Hong Kong, leveraging its mature financial infrastructure to manage and grow assets compliantly. This “domestic enforcement, overseas disposal” dual-track system can avoid mainland regulatory restrictions while connecting with international financial markets.
Technological empowerment of regulation: using blockchain traceability technology to create a “Digital Asset Blacklist,” tracking the flow of seized assets in real-time to prevent secondary circulation. The pilot “On-Chain Supervision System for Involved Assets” in 2024 has already monitored over 100k Bitcoin dynamically.

It is evident that China’s attitude toward cryptocurrencies may be shifting from “total prohibition” to “classified regulation.” Although the 2021 ten ministries’ document explicitly bans cryptocurrency trading, this seminar signals two major messages: first, asset attribute recognition—no longer simply viewing cryptocurrencies as “illegal financial tools,” but as “special involved assets” incorporated into the rule of law. This shift lays the groundwork for future compliance pilots (such as institutional custody and cross-border asset transfers); second, balancing security and efficiency—exploring market-oriented disposal paths for seized assets under the premise of preventing financial risks. For example, allowing some assets to be used for “anti-money laundering funds” or public services instead of straightforward liquidation.
Overall, China’s exploration of the seizure and disposal mechanism for cryptocurrencies is essentially a reflection of regulatory innovation in the digital economy era—when technological innovation conflicts with institutional lag, how to balance risk prevention and value utilization becomes a global challenge. From local governments’ “stopgap measures” to central-level “systemic restructuring,” this discussion will not only reshape China’s underlying logic for cryptocurrency regulation but may also provide a “Chinese solution” for global digital asset governance.
As the regulatory framework gradually clarifies, cryptocurrencies in China are shifting from “illegal financial tools” to “special regulated assets.” In the future, when seized Bitcoin is incorporated into national strategic reserves and blockchain technology is used for asset tracking, we may witness a more inclusive regulatory system—one that safeguards financial security while leaving room for technological innovation. This reform, which began as a “gray area revenue,” could ultimately become a milestone in China’s modern digital financial governance.