Chinese local governments have been quietly selling confiscated cryptocurrencies worth around $1.4 billion

operating in a regulatory gray area that experts warn could foster corruption and undermine the country's official ban on crypto trading.

As reported by , local governments in China have reportedly been quietly selling confiscated cryptocurrencies, raising concerns over corruption and the country’s cryptocurrency ban.

According to a Thursday report by Reuters, regional authorities have been using private companies to liquidate seized digital assets overseas and convert them into cash to help plug gaps in struggling local budgets.

The practice is now raising concerns as it continues despite the absence of clear national rules on how seized digital assets should be handled.

“These sales represent a makeshift solution that, strictly speaking, is not fully in line with China’s current ban on crypto trading,” said Chen Shi, professor at Zhongnan University of Economics and Law.

The amount of seized crypto has ballooned alongside a rise in digital asset-related crime in China. By the end of 2023, the country held roughly 15,000 Bitcoin (BTC), valued at around $1.4 billion.

However, blockchain analytics firm Bitbo believes the real number may be much higher, up to 194,000 Bitcoin worth around $16.3 billion. That would put China second only to the U.S. in terms of government Bitcoin holdings. The U.S. is said to control over 207,000 Bitcoins valued at approximately $17.4 billion.

The situation reflects China’s complicated relationship with crypto. While the government banned trading in 2021, authorities now find themselves sitting on large crypto reserves acquired through crackdowns on online fraud, gambling, and money laundering.

To avoid misuse, lawyers have been calling for reform. Guo Zhihao, senior partner at Beijing Yingke Law Firm, suggested that China’s central bank take over management of these assets, either by selling them abroad or creating a national crypto reserve, similar to what former U.S. President Donald Trump proposed.

The debate comes as crypto-related criminal activity in China surges. According to blockchain security firm SAFEIS, the volume of money involved in such crimes spiked tenfold to about 430.7 billion yuan ($59 billion) in 2023.

Moreover, Chinese courts prosecuted more than 3,000 individuals last year for crypto-based money laundering. Some analysts say Beijing may also be paying closer attention to crypto assets over fears of capital flight, especially with rising trade tensions with the U.S. Earlier this month, former BitMEX CEO Arthur Hayes said he expects new American tariffs could drive flows from Chinese yuan into Bitcoin.