China’s Local Governments Quietly Selling Seized Bitcoin Despite Nationwide Crypto Ban

A Reuters investigation published on April 16, 2025, has pulled back the curtain on a practice that sits at the center of one of crypto’s most glaring contradictions: Chinese local governments are quietly liquidating seized cryptocurrencies to patch strained public budgets — despite Beijing’s sweeping 2021 ban on all crypto trading.

The report reveals that municipalities across China have been using private firms to convert confiscated digital assets into cash, with one Shenzhen-based company alone processing over 3 billion yuan ($414 million) in crypto sales since 2018. The transactions, linked to authorities in cities including Xuzhou, Hua’an, and Taizhou, accelerated sharply after 2023 as local governments scrambled to offset revenue shortfalls caused by a slowing economy.

TL;DR

• Chinese local governments are selling seized crypto through private intermediaries despite the 2021 national ban on crypto trading
• One firm, Jiafenxiang, has processed over $414 million in crypto liquidations since 2018 on behalf of municipal authorities
• China held approximately 15,000 BTC worth $1.4 billion as of December 2024, ranking among the top 15 global holders
• Legal experts warn the practice operates in a gray zone with no standardized disposal rules or transparency requirements
• Sales may have contributed to unexplained market downturns in late 2024 and early 2025

The Scale of China’s Covert Crypto Selloff

According to data from blockchain security firm SAFEIS, approximately $59 billion in digital assets was tied to crypto-related criminal activities in China, resulting in over 3,000 prosecutions for fraud, illegal gambling, and money laundering. These seized assets — predominantly Bitcoin, Ethereum, and stablecoins — have become an off-budget revenue source for cash-strapped municipalities.

River, a Bitcoin investment firm, reported that China held roughly 15,000 BTC valued at $1.4 billion by December 2024, making it one of the largest government holders of Bitcoin globally. The irony is inescapable: the same government that criminalized crypto ownership is simultaneously one of the world’s largest crypto sellers.

The Legal Gray Zone

The sales exist in an uncomfortable regulatory limbo. China’s September 2021 blanket ban declared all cryptocurrency transactions illegal, yet no formal legal framework governs how authorities should handle confiscated digital assets. Local governments have filled this vacuum with ad hoc arrangements, contracting third-party companies to execute trades on overseas or over-the-counter markets.

Legal scholars cited in the Reuters report warn that the absence of standardized disposal procedures creates conditions for opaque dealmaking, potential corruption, and market manipulation. Unlike the United States, where the Department of Justice follows a public auction process for seized Bitcoin (most notably the Silk Road coins), China’s approach offers zero transparency about timing, pricing, or volume.

Market Impact and Unexplained Dumps

Crypto analysts have long speculated about the source of sudden, unexplained sell pressure in the Bitcoin market. Cas Abbe, a Web3 growth manager and Binance affiliate, connected the dots publicly in early 2025, stating: “Local governments in China are selling seized crypto to top up their treasury. This explains pretty much the dump even before tariff news hit the market.”

With Bitcoin trading around $83,500 on April 16, 2025, even relatively modest liquidations from a 15,000 BTC stockpile could move prices. The total crypto market capitalization stood at approximately $2.7 trillion, making it sensitive to large, unannounced sell orders — especially when executed through OTC channels that bypass exchange order books.

Expert Calls for Regulatory Clarity

The Reuters report has intensified debate among Chinese legal experts about the need for comprehensive reform. Proposals under discussion include:

• Classifying cryptocurrency as a legitimate asset class rather than treating it as contraband, which would create a legal basis for transparent handling
• Establishing standardized disposal procedures with clear rules on timing, disclosure, and methodology
• Centralizing seized asset management at the national level rather than leaving it to local governments acting independently
• Exploring a strategic national crypto reserve, mirroring discussions in the United States and other jurisdictions

The debate mirrors broader global conversations about how governments should handle seized digital assets. The United States, United Kingdom, and several European nations have established (or are developing) formal frameworks, while China’s approach remains reactive and fragmented.

The Bigger Picture

China’s crypto ban was always more aspirational than absolute. Miners relocated but continued operating in neighboring countries. Traders moved to VPN-shielded offshore exchanges. And now it’s clear that the government itself never truly exited the market — it simply became a seller by proxy.

For the global crypto industry, the revelation is a reminder that regulatory posturing and actual practice often diverge sharply. When a government that criminalizes crypto simultaneously liquidates $1.4 billion in Bitcoin through back channels, it raises fundamental questions about the rule of law, market fairness, and the true relationship between sovereign power and decentralized finance.

Why This Matters

China’s covert crypto liquidations expose the hypocrisy at the heart of the world’s most aggressive anti-crypto regulatory stance. With 15,000 BTC in government hands and no transparent disposal framework, the practice injects unpredictable sell pressure into global markets while operating entirely outside the legal structures that Beijing itself imposed. For regulators worldwide, it’s a case study in why seized digital assets demand clear, public, and accountable handling procedures. For investors, it’s a reminder that the largest crypto whales may not be private institutions — they may be governments pretending not to be in the water.

Disclaimer: This article is for informational purposes only and does not constitute financial, legal, or investment advice. Cryptocurrency markets are highly volatile, and readers should conduct their own research before making any investment decisions.