For instance, the Shenzhen-based company Jiafenxiang has allegedly facilitated over $400 million in crypto sales for city governments, converting the proceeds into yuan for local finance departments.

Despite its public opposition to cryptocurrency trading, Chinese authorities have been profiting from confiscated Bitcoin through an underground operation.

Local governments in China are collaborating with private tech firms to liquidate confiscated Bitcoin on offshore exchanges, all while intensifying their crackdown on crypto-related crimes.

This situation underscores a significant contradiction for China, as it publicly denounces cryptocurrencies while reaping financial benefits from their sales.

In 2023, China faced over $59 billion in losses tied to crypto-related crimes, alongside more than 3,000 prosecuted money laundering cases, highlighting the financial strain on local governments.

As of now, Bitcoin is trading at $84,800, having surged 5% in the past week.

Amid these challenges, discussions are ongoing among Chinese legal officials about establishing a consistent national policy for seized cryptocurrencies, with proposals including central bank control or the creation of a sovereign crypto fund.

Market analyst Leviathan warns that China may be planning to sell its Bitcoin holdings, a move that could potentially drive the price down to $40,000 as it attempts to stabilize above $80,000.

China currently holds approximately 194,000 BTC, making it the second-largest government holder of Bitcoin, just behind the United States.

The fate of China's Bitcoin holdings could significantly influence national policies and impact the global financial landscape, especially as the U.S. moves towards legitimizing cryptocurrencies.

Hong Kong has emerged as a potential haven for China's confiscated Bitcoin, offering a more favorable legal framework for cryptocurrency operations.

Despite the government's anti-crypto stance, local governments are increasingly reliant on revenue from fines and confiscated cryptocurrencies.