As the pile of seized cryptocurrencies in China continues to grow, local governments now quietly rely on private firms to convert digital assets into fiat currency. Reuters reported this trend on April 16, 2025, highlighting a sharp contrast between China’s strict ban on crypto trading and the practical need to liquidate confiscated tokens. This contradiction exposes the murky regulatory gray zone in the world’s second-largest economy.
Despite the country’s sweeping ban on all crypto transactions, Chinese authorities must confront an inconvenient reality: crime involving digital assets continues to rise. From Ponzi schemes to illegal fundraising, these activities often involve cryptocurrency, which police seize during investigations. These confiscations pile up fast — and local officials must act. But with trading outlawed, what happens to the digital assets?
China’s Dilemma: Ban Versus Reality
China outlawed all crypto transactions in September 2021, cementing its position as one of the most crypto-hostile nations in the world. The government banned local crypto exchanges as early as 2017 and later extended the restrictions to mining and overseas crypto platforms. Yet, enforcement agencies keep seizing large quantities of Bitcoin, Ethereum, and other altcoins from criminal operations.
The contradiction is clear: while the law prohibits trading, state institutions must still manage and dispose of seized digital currencies. Local governments face increasing pressure to monetize these holdings — often worth millions — instead of letting them sit idle or risk devaluation during volatile markets.
Chen Shi, a professor at the Zhongnan University of Economics and Law, addressed this paradox in his comments to Reuters. He called the current disposal methods “makeshift solutions” and emphasized that they do not align fully with the country’s crypto trading ban. “This situation demands better oversight,” Chen added, “especially as crypto-related crimes increase rapidly.”
Authorities Turn to Private Companies
To solve this problem, local governments now quietly enlist private firms to convert seized crypto into fiat. These firms operate within a legal loophole. They handle digital wallets, transfer assets to licensed offshore exchanges, and liquidate them for cash. In theory, they remain compliant with Chinese capital control laws, even as they technically engage in a banned activity.
Blockchain service provider Bit Jungle confirmed this practice. The company told Reuters that private businesses can legally assist in crypto disposal if they meet specific conditions. Bit Jungle claimed it always safeguards digital assets, follows offshore licensing rules, and adheres to China’s capital control regulations.
This workaround remains controversial.
Sun Jun, a senior partner at Shanghai Landing Law Offices and a specialist in crypto law, described it as “a highly profitable business.” He said more firms now enter the field, attracted by the potential for large commissions and low competition. Sun urged the government to “clarify the legal status of virtual currencies, establish a formal disposal system, and create a rigorous screening process for private companies handling such transactions.”
Without a clear national framework, decisions fall to provincial and local authorities, creating inconsistency and raising questions about accountability.
Legal Experts Urge Central Oversight
Guo Zhihao, a lawyer from Beijing Yingke Law Firm, highlighted the internal contradiction at play. “The crypto trading ban conflicts with the government’s need to dispose of seized digital currencies,” Guo explained. He suggested that the People’s Bank of China (PBOC) should take control of the situation.
“The central bank holds the institutional capacity to manage these assets responsibly,” Guo said. “The PBOC could either liquidate them through foreign exchanges or build a national reserve from seized tokens — similar to what former U.S. President Donald Trump proposed.”
By shifting responsibility to the central bank, China could reduce the legal risk of involving private intermediaries while also streamlining the asset disposal process.
Why the Government Remains Silent
Despite the increasing value of seized crypto holdings and the growing use of private companies, the central government has not issued formal guidelines. Analysts believe the silence reflects a deeper political stance. By not acknowledging the secondary crypto economy, the state avoids appearing soft on enforcement. At the same time, local authorities find themselves in a bind — unable to destroy digital tokens and under pressure to monetize state-seized property.
This creates a shadow economy where profits circulate outside public knowledge and legal clarity. The lack of transparency raises concerns about corruption, data mishandling, and potential misuse of funds.
Cryptocurrency does not disappear after seizure. It requires secure storage, price monitoring, and ultimately liquidation. Each stage introduces legal and operational risks that the current system fails to regulate.
A Growing Financial Asset
As authorities crack down harder on crypto-related fraud and cross-border financial crimes, the volume of seized assets continues to climb. Reports suggest that Bitcoin, Ethereum, Tether, and Solana appear most frequently in confiscated wallets. In several provinces, local governments auction off the proceeds after liquidation, but they rarely disclose the methods or firms involved.
The revenue can run into millions of dollars.
This process now resembles a parallel financial system — one that exists under the radar, outside the reach of traditional financial reporting or audit trails. For a country that champions strict financial control, this ambiguity looks unsustainable.
Public Sentiment and Political Messaging
While some citizens welcome any action that penalizes crypto fraudsters, others criticize the apparent double standard. The state tells its citizens that crypto is illegal and dangerous, yet it quietly profits from the sale of confiscated tokens.
This contradiction erodes public trust and confuses investors, especially younger Chinese citizens who still engage with crypto through VPNs and offshore exchanges. In underground WeChat groups, users share tutorials on using stablecoins, privacy wallets, and peer-to-peer transfers. Many already suspect the government’s real stance on crypto leans more pragmatic than ideological.
The Road Ahead: Policy or Pretense?
China must now decide how to proceed. The current system survives on loopholes, unofficial partnerships, and legal vagueness. This works — for now. But as the crypto economy expands and more seizures occur, the lack of a unified approach will strain both credibility and enforcement.
Experts across the legal and blockchain sectors call for reform. They suggest the central government:
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Acknowledge the value and reality of seized crypto assets.
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Assign custody and oversight to the People’s Bank of China.
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Create a centralized disposal platform under legal supervision.
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Screen and license disposal agents rigorously.
These steps would restore public confidence, maintain legal consistency, and align the government’s messaging with its actions.
Until then, China walks a tightrope — banning crypto in principle but embracing it in practice, one seizure at a time.l
