China’s local governments are discreetly liquidating seized Bitcoin, aiming to drive prices toward $40,000. Despite banning crypto trading in 2021, authorities have offloaded over $400 million via shadow firms. Analysts warn this could destabilise markets.
This news comes when Chinese officials are facing scrutiny for exploiting legal gaps to fund struggling municipalities. “They’re walking a fiscal tightrope,” says a Shenzhen-based financial advisor.
The strategy relies on offshore intermediaries to bypass domestic restrictions. For instance, Jiafenxiang, a Shenzhen tech firm, has funnelled $400 million from crypto sales into provincial coffers since 2018. Following this, Bitcoin’s price fears intensify as whispers of China’s stockpile of 194,000 BTC unloading loom.
How China Amassed a Bitcoin War Chest
Chinese authorities seized nearly 194,000 BTC worth $9.7 billion at $50,000 per coin from criminal operations. Police targeted scams, gambling rings, and money laundering networks, quietly stockpiling digital assets. Comparatively, the U.S. holds 198,000 BTC, making China the second-largest government owner globally.
Unlike the U.S., however, China’s stash lacks legal safeguards. Without national disposal guidelines, provinces improvise. Some partner with private firms; others bury transactions in opaque ledgers. “It’s a free-for-all,” notes a Beijing legal scholar. “Every city plays by its own rules.”
The Offshore Backdoor Keeps Sales Hidden
To sidestep Beijing’s crypto ban, cities employ firms like Jiafenxiang. These companies sell Bitcoin on foreign exchanges, convert proceeds to yuan, and wire funds home. For example, Jiangsu province used this method to inject millions into local budgets. Yet critics call the setup “legally reckless.”
Meanwhile, Hong Kong emerges as a potential hub. Its legal crypto infrastructure, including Bitcoin ETFs, offers China plausible deniability. “Moving assets there turns chaos into strategy,” argues a Hong Kong trader. Still, risks persist. Unregulated third parties handle billions, inviting corruption. One lawyer warns, “No one audits these deals.”
Economic Strains Fuel Desperation
Local governments grapple with debt and slumping revenues. Public income from fines and confiscations hit 378 billion yuan ($52 billion) in 2023, partly from crypto sales. “They need cash, fast,” explains a Shanghai economist. “Crypto’s become a lifeline.”
But opacity breeds distrust. Legal advisors demand centralised oversight to prevent side deals. Proposals include a national asset agency or sovereign crypto fund. Until then, cities keep exploiting the grey zone. “If Beijing intervenes, this house of cards collapses,” says a provincial auditor.
Global Fallout and the U.S. Factor
China’s covert sales clash with America’s crypto embrace. The U.S. recently greenlit Bitcoin ETFs and debates federal reserves. Should Trump deregulate further, China may retaliate by hoarding BTC or accelerating sales. “It’s a geopolitical chess match,” observes a Wall Street analyst.
Market reactions remain muted so far. Institutional investors like BlackRock buffer volatility, absorbing potential dumps. Yet China’s 194,000 BTC could tip the scales. “A sudden sell-off would rattle confidence,” warns a Coinbase executive. Conversely, long-term holding might position China as a crypto superpower.
Will Regulation End the Chaos?
Calls grow for Beijing to formalise crypto policies. Judges and lawyers urge recognising Bitcoin as property, enabling lawful management. Others propose funnelling seizures through Hong Kong or a state-run fund. “Clarity is urgent,” insists a Supreme People’s Court adviser.
Until then, provinces keep profiting from the shadows. Seminars between officials and legal experts hint at reform, but progress stalls. Meanwhile, Jiafenxiang’s deals continue unchallenged. “They’re gambling with global markets,” says a blockchain analyst. “And everyone’s paying attention.”
Final Takeaway
China’s Bitcoin dilemma mirrors a global struggle: ban digital assets or harness their power. As local governments cash in, the world watches for clues. Will crypto become a state tool or remain a fiscal escape hatch? Either way, the fallout could redefine finance.
