China Aims to ditch its massive crypto stash

Since 2021, crypto trading has been banned in China.

Since 2021, crypto trading in China has been banned. That means all financial activity with digital currencies like bitcoin is illegal. But the ban has proven increasingly hard to enforce in practice, especially for local governments.

They hold significant amounts of seized cryptocurrency, often obtained in criminal cases or investigations. But the current ban prevents them from selling these assets, even though the proceeds would be helpful for often tight government budgets.

According to Reuters, serious discussions are now underway about possible easing of the ban. Senior judges and police officials would be working on changing the rules so that sale of seized crypto would be legally possible.

Yet this is already happening in many places, albeit quietly. Documents show local governments frequently hire private companies to sell the digital coins on their behalf. In doing so, they still fill the state treasury, even though that approach clashes with official policy. "These kinds of sales are essentially a stopgap," says Chen Shi, professor at Zhongnan University of Economics and Law. "Strictly speaking, they are in violation of the current ban, and there is an urgent need for better regulation and oversight."

The original ban was imposed by China's central bank in September 2021. In practice, however, there have since been enough loopholes to continue trading—especially at the local level. That has led to a sharp rise in seized cryptocurrency in recent years.

As of the end of last year alone, local authorities would have held about 15,000 bitcoins, Reuters reports. But that is only a fraction of what China as a whole possesses: the country is believed to hold 190,000 bitcoins, with an estimated value of around $15.8 billion. That makes China the second-largest bitcoin holder worldwide, after the United States. And billions more in altcoins likely to be added.

The question is not if China will use its digital treasury, but when and under what conditions.