China, the country that considers Bitcoin (BTC) and cryptocurrency transactions illegal, is selling millions in seized digital assets after detecting criminal operations. Provincial governments are liquidating these crypto assets and converting them into yuan to save their finances during turbulent market times. Meanwhile, the question remains: Can China continue to ignore the power of digital currencies like Bitcoin in a world that already embraces them?

Since 2021, China has maintained a strict ban on cryptocurrency trading and mining, not recognizing them as legal assets. However, the increase in crypto assets seized in criminal investigations has forced local authorities to seek practical solution

According to Reuters, the governments of cities like Xuzhou and Taizhou delegate the sale of these assets on international exchanges to private companies, repatriating the funds to alleviate public coffers hit by the current economic slowdown. However, the lack of a clear legal framework raises concerns about corruption, money laundering, and the sustainability of this practice in a context of rising crime involving digital assets.

Chen Shi, a professor at Zhongnan University of Economics and Law, warns that this practice is a "makeshift solution" that contradicts the current ban. Furthermore, at a recent seminar in Beijing, experts agreed that the lack of regulation creates significant risks. "Without clear rules, sales of seized cryptocurrencies are fertile ground for irregularities,” said Liu Honglin, a lawyer specializing in crypto assets.

The rise of cryptocurrency-related illicit activities has driven seizures in China. According to SAFEIS, a cryptocurrency ecosystem security firm, money linked to crypto-asset crimes reached 430.7 billion yuan (about $59 billion) in 2023, a tenfold increase compared to previous years. These seizures generated record tax revenue, with 378 billion yuan in 2024, according to official data.

Companies like Shenzhen-based Jiafenxiang are emerging as key players in this process. Documents reviewed by Reuters show that the company liquidated more than 3 billion yuan in seized cryptocurrencies, selling them on offshore platforms and repatriating the funds through local banks.

What to do with the millions of dollars in bitcoin seized? A dilemma in China

Lawyers like Guo Zhihao of Beijing Yingke Law Firm believe the People's Bank of China should take a central role , whether by selling cryptocurrencies on international markets or creating a strategic reserve, similar to the one proposed by the Donald Trump administration in the United States.

For his part, Winston Ma, former director of China Investment Corp, proposes emulating the Hong Kong model, where digital assets are legal, allowing management to be centralized under a sovereign wealth fund to maximize their value.

These ideas clash with China's official stance, which maintains a hard line against cryptocurrencies. However, the country faces a paradox. This is because, according to the firm River, China is now the 14th largest holder of Bitcoin in the world due to confiscations, forcing it to rethink its strategy.

However, on-chain data analysis by CryptoQuant CEO Ki Young Ju suggests that China may have liquidated the 194,000 bitcoins seized in 2019 after dismantling the Plustoken Ponzi scheme. These funds, moved through mixers and exchanges like Huobi, were reportedly sold without official government confirmation. This potential sell-off reinforces the paradox that while China bans cryptocurrencies, its actions in global markets position it as a key player in the ecosystem, which could push for more open regulation in the future.

In February, the need for a clear regulatory framework for managing crypto assets has been frequently raised, especially in court cases involving "national financial security" issues.

To achieve this, greater cooperation between regulators and judicial agencies is proposed. Meanwhile, due to a court ruling, cryptocurrencies were recognized as "virtual goods" with ownership attributes, allowing their possession under certain conditions, although their use in commercial transactions remains illegal.