China's Bitcoin Sell-Offs Are Tanking the Price

Bitcoin price took a hit in late 2024, dropping 10% in weeks, leaving traders scrambling for answers.

In a surprising twist amidst China’s crypto ban, local governments are liquidating confiscated cryptocurrencies through private firms to replenish their coffers, a new report by Reuters has revealed.

The report highlights the case of Jiafenxiang, a Shenzhen-based tech firm specializing in technology services, which has sold over 3 billion yuan ($414 million) in digital assets since 2018. Transactions by the firm are linked to authorities in Xuzhou and Hua’an, with another instance of a bulk sale to Taizhou government officials also emerging in 2023.

These sales come to light following a report by blockchain security firm SAFEIS. Earlier this year, the firm estimated that $59 billion was lost to crypto-related crimes in 2023 alone, leading to the prosecution of more than 3,000 individuals for fraud, illegal gambling, and other offenses.

Cas Abbe, a Web3 growth manager and affiliate at Binance, shed light on these sales on X (formerly Twitter) earlier this year, linking them to recent market dips.

“Local governments in China are selling seized crypto to top up their treasury,” Abbe stated. “This explains pretty much the dump even before tariff news hit the market.”

Earlier this year, Bitcoin investment firm River disclosed in its 2024 digital asset report that China is sitting on a massive 15,000 BTC fortune, valued at $1.4 billion. This would place the nation among the top 15 Bitcoin holders globally.

However, despite a 2021 nationwide ban on crypto trading, local governments have been quietly selling seized BTC to fill their budget shortfalls.

But how is this possible, and what does it mean for Bitcoin price and the broader crypto market?

China’s crypto ban, announced in September 2021, outlaws trading activity but doesn’t cover the disposal of seized assets, creating a legal gray area for these liquidations.

An analyst known as "The Real Token" raised this question on X, stating that: “Wait, how are they even doing this /legally/. China has banned crypto trading and local officials are selling coins to a Chinese tech firm. Is this not a crime in China? How is this even possible?”

The lack of transparency from the Chinese government is a point of contention among crypto enthusiasts, especially as it impacts a market that is already known for its volatility.

Moreover, local governments in China are known to be facing severe financial strain due to rising debt levels and a slowdown in economic growth, which has put pressure on their budgets.

River’s 2024 estimate of China’s $1.4 billion Bitcoin wealth provides a potential lifeline for these cash-strapped institutions.

Reports from last year indicate that Xuzhou is among the local governments actively liquidating seized cryptoassets to fund public services and infrastructure projects.

Similarly, officials in Hua’an and Taizhou were involved in bitcoin sales to Jiafenxiang in 2023, further suggesting a pattern of regional authorities monetizing their cryptocurrency holdings.

SAFEIS’s 2023 figures, estimating $59 billion in crypto-related crimes, highlight a consistent flow of confiscated tokens that could be sustaining these liquidation efforts.

These actions by local governments are a pragmatic response to the pressing economic realities, although they clash with Beijing’s broader policy stance on cryptocurrencies.

As these liquidations continue to unfold, they could destabilize an already volatile crypto market.

Experts are calling for swift action from Chinese authorities to mitigate the risks and instability arising from these activities.

Crucial steps include recognizing cryptocurrencies as legal assets in China and establishing clear protocols for the disposal of seized tokens.

Some suggest the creation of a national crypto reserve, similar to the Trump administration’s 2025 proposal for a U.S. bitcoin standard.

Without swift action from Beijing to regulate and control these actions by local officials, they could continue to destabilize the crypto market with risky market dumps.