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Seized Cryptocurrencies: A Growing Revenue Stream for Local Governments in China
Despite the official ban on cryptocurrency trading, China is quietly turning seized digital assets into cash through private firms. As the country’s pile of confiscated cryptocurrencies grows due to illegal transactions, local authorities are navigating a complex legal and financial landscape to manage these assets effectively.
Seized Crypto and Legal Challenges
Experts have raised concerns about the legal implications of liquidating seized cryptocurrencies in China. Chen Shi, a professor at the Zhongnan University of Economics and Law, has highlighted that this practice is a “makeshift solution” and not entirely aligned with the country’s ban on crypto trading. He emphasizes the need for improved oversight as the number of crypto-related crimes increases.
Guo Zhihao, a lawyer at Beijing Yingke Law Firm, points out a significant conflict between the crypto trading ban and the necessity for local authorities to deal with confiscated tokens. He suggests that the People’s Bank of China, the nation’s central bank, should take a more active role in managing these assets. According to Guo, the bank could either sell the cryptocurrencies overseas or create a crypto reserve from the seized tokens.
The Role of Private Firms
Private companies have stepped in to assist local governments in converting seized cryptocurrencies into cash. Blockchain service provider Bit Jungle notes that these firms can operate legitimately if they comply with regulations, use licensed offshore exchanges, and adhere to capital controls. This approach ensures the safeguarding of assets while meeting legal requirements.
Sun Jun, a senior partner at Shanghai Landing Law Offices and a lawyer specializing in cryptocurrency, acknowledges the profitability of this business. He urges the government to clarify the legal status of virtual currencies, establish a formal system for disposal, and carefully screen the companies involved in these transactions. This would reduce ambiguity and enhance accountability in the management of seized digital assets.
A Challenging Crypto Landscape in China
China has maintained a strict stance on cryptocurrency, starting with the shutdown of local exchanges in 2017. At that time, the speculative market in China accounted for 90% of global Bitcoin trading. In September 2021, the government reinforced its position with a complete ban on all crypto trades, aiming to curb financial risks and illegal activities.
Despite these regulations, the need to liquidate confiscated cryptocurrencies remains a pressing issue. As crypto-related crimes and legal complexities continue to rise, experts argue that the government should establish a clearer framework to manage these assets effectively.
Key Considerations for Cryptocurrency Management
- Improved Oversight: Stricter regulations and monitoring systems are necessary to ensure compliance with the crypto trading ban while managing seized assets.
- Centralized Management: The People’s Bank of China could play a pivotal role in overseeing the liquidation and utilization of confiscated cryptocurrencies.
- Legal Clarifications: Clear guidelines on the status and disposal of virtual currencies can help mitigate conflicts and streamline the process.
- Screening Private Firms: Vetting companies involved in cryptocurrency liquidation ensures accountability and adherence to legal standards.
The intersection of cryptocurrency and legal policy in China remains a dynamic and challenging area. As the nation continues to grapple with these issues, the need for a structured and transparent approach becomes increasingly critical.
