China Grapples With Criminal Crypto Cache

China is grappling with an increasing volume of cryptocurrencies seized from illegal transactions, prompting local governments to seek methods for disposal and sparking calls for clearer, nationwide regulations, according to a Reuters report on Tuesday.

Currently, with cryptocurrency trading officially banned on the mainland and digital tokens not recognized as legal tender or assets, local authorities have been employing private companies to convert seized Bitcoin and other cryptocurrencies into cash. These funds are then used to replenish local government coffers, which are facing strain from a slowing economy, as evidenced by transaction and court documents reviewed by Reuters.

However, this decentralized approach is drawing criticism. Lawyers argue that the absence of a unified legal framework for handling seized crypto has resulted in inconsistent and opaque practices, potentially emboldening criminals and creating opportunities for corruption.

The urgency for better supervision is escalating alongside a surge in crypto-related criminal cases, including internet fraud, money laundering, and illegal gambling.

The debate within China's legal and financial sectors appears to be coalescing around the need for judicial recognition of cryptocurrencies as assets and the implementation of a standardized procedure for their disposal. While the seminars held to discuss these issues do not guarantee policy changes, participants indicate a growing consensus on the necessity of a more consistent and transparent system.

While the total amount of money involved in crypto-related crimes surged to 430.7 billion yuan ($59 billion) in 2023, as cited by Reuters, the exact value of the seized cryptocurrency cache remains less clearly defined.

Reuters' investigation revealed that one Shenzhen-based technology company has sold cryptocurrencies worth more than 3 billion yuan on behalf of various local governments since 2018. Additionally, the article noted that China's local governments held an estimated 15,000 bitcoins worth $1.4 billion at the end of last year (2024, according to the article's timeline).

Experts quoted by the publication suggest that a more centralized approach to managing these seized cryptocurrencies could enhance efficiency and maximize their value.