China Set To Give Crypto Legal Recognition? Dumping of Seized Assets To Navigate Economic Slowdown Sparks Debates

Despite a trading ban, Chinese local governments have reportedly been selling seized crypto assets through private companies.

While mainland China continues to uphold its cryptocurrency ban, Hong Kong is pushing to become a cryptocurrency hub.

Once the leading cryptocurrency trading and mining hub, China has long ceded its dominance to the U.S. following a series of suppressive regulatory measures, including a blanket ban in 2021.

Now, nearly four years later, the Asian economic giant may be considering a potential softening of its treatment of cryptocurrencies, but not for the reasons many would have anticipated.

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Judicial Recognition

According to a Reuters report, Chinese law enforcement officials, lawyers and financial industry participants are pushing for some judicial recognition of cryptocurrencies as assets in a potential landmark shift for the country’s cryptocurrency industry.

The calls come as the country sees a spike in cryptocurrency asset seizures from criminal cases. The lack of clear rules on how to handle these seizures is raising corruption concerns.

So far, Chinese local governments have been selling these seized cryptocurrencies for cash through private firms to shore up their coffers amid an economic slowdown. Specifically, the assets are sold for U.S. dollars in foreign markets and converted into yuan by local banks before being transferred to local government accounts holding public funds.

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Using this method, a local technology company, Jiafenxiang, has sold over 3 billion yuan, or about $41 million, worth of cryptocurrency assets on behalf of three local governments, Xuzhou, Hua’an, and Taizhou, since 2018.

But most officials argue that current methods are inconsistent and opaque, with at least one expert arguing that the sales go against the country’s ban on crypto trading. In a January seminar on the issue, officials reportedly suggested everything from establishing clear guidelines to a strategic reserve like the Trump administration, all of which could be a boon for the industry by paving the way for greater adoption.

Nonetheless, the amount of cryptocurrency assets the Chinese government holds is debatable. While Bitbo Treasuries suggests that the country has 194,000 BTC worth over $16 billion, most of which were seized from the PlusToken scam, Bitcoin investment firm River indicates that the government only holds 15,000 BTC worth about $1.4 billion.

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The disparity comes as some analysts suggest that China has since disposed of Bitcoin assets seized from the PlusToken Ponzi scheme. According to conflicting data, China is either the country with the second largest or 14th largest Bitcoin holdings.

While mainland China continues to uphold its cryptocurrency ban, Hong Kong is pushing to become a cryptocurrency hub. The special administrative region of China has approved several spot Bitcoin and Ethereum exchange-traded funds and issued licenses to several cryptocurrency exchanges.

Whether the mainland will eventually follow a similar path, especially as the U.S. seeks to take the lead in the sector under Trump, remains to be seen. But legal recognition of the assets could be a good start.

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