Cryptocurrency - State Level Regulation and Investigations

Cryptocurrency Regulation

Historically, governments have taken a defensive stance on cryptocurrency, but under President Donald Trump, the U.S. appeared to shift toward a more aggressive approach. On July 27, 2024, Trump stated that the U.S. must lead the cryptocurrency space to avoid being dominated by China or other countries. He proposed creating a national Bitcoin reserve and urged U.S. companies to expand Bitcoin mining. On March 6, 2025, President Trump signed an executive order establishing the strategic Bitcoin reserve for the United States. This initiative aims to position the U.S. as the "crypto capital of the world" by incorporating various digital assets into the government's holdings. The reserve will include Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), Solana (SOL), and Cardano (ADA), with assets acquired through law enforcement seizures. The government plans to retain these cryptocurrencies without selling them, aligning with the goal of supporting the digital asset industry.

While China maintains strict regulations, it supports blockchain technology and the digital yuan (e-CNY). Therefore, facing the policy shift on the U.S. side, China could respond by strengthening its state-supported digital currency initiatives. Hong Kong, as part of China, is also fostering its cryptocurrency ecosystem, potentially becoming a test field for strategies to counter the dollar's dominance. Additionally, if the U.S.'s cryptocurrency reserve conflicts with U.S. monetary policies, it could elevate China’s role in the digital currency space.

Transnational Crime and Law Enforcement Challenges

Cryptocurrencies are being increasingly used in transnational crime, particularly in money laundering, fraud, and illegal gambling. Their anonymity and cross-border mobility pose challenges for law enforcement. The following cases illustrate these issues:

In April 2024, Yadi Zhang, a Chinese national, was arrested in the UK for allegedly laundering up to $5.6 billion in Bitcoin between 2014 and 2017, largely from fraudulent activities targeting Chinese investors. The case will be heard in 2025, and Zhang has denied the charges. Jian Wen, closely linked to Zhang, was also arrested in 2018 with 61,000 Bitcoin worth over £5 billion. Wen was sentenced to six years in prison. The UK government currently holds around £520 million in Bitcoin from the 2014-2017 fraud cases, and it is under increasing pressure to sell these assets due to the country’s fiscal deficit. This case underscores the role of cryptocurrencies in modern crime and raises questions about effective regulation in the context of money laundering.

Cryptocurrencies’ anonymity makes them ideal tools for criminal activities, complicating asset seizure and investigation. Law enforcement agencies need to improve cooperation and information sharing across borders. Cryptocurrency exchanges should enhance anti-money laundering (AML) and know your customer (KYC) practices. Countries should establish unified regulatory frameworks to prevent misuse in criminal activities. As cryptocurrency-related crime rises, global collaboration in regulation and enforcement is essential to ensure the healthy development of the market.

Cryptocurrency crime investigation

Although on-chain investigation can be challenging due to the decentralized nature of cryptocurrencies, effective investigative methods can still yield useful results.

For instance, cryptocurrency wallets are commonly found on suspects' computers, mobile phones, and other digital devices through digital forensic analysis. Cryptocurrency account information can sometimes also be retrieved from relevant crypto exchanges by authorities, and since many of these exchanges are operated by Chinese nationals, such retrieval efforts may be relatively straightforward for PRC authorities. Third parties engaged in collecting cryptocurrency transaction data can provide valuable insights for cross-border investigations. In the aforementioned case in the UK, physical wallets might also be uncovered from the suspects’ residences once a search warrant is granted.

A consultancy firm experienced in digital forensics, like Grapevine Asia, can therefore provide expert support in cryptocurrency-related investigations. Utilizing advanced forensic tools to extract and analyze data from suspects' computers, mobile phones, and other digital devices, it is possible to uncover cryptocurrency wallets and transaction records which are vital for cryptocurrency related crime investigations as well as the recovery of funds. Aside from large scale scams, there have been micro-level cases where in procurement staff of a company receive cryptocurrency as kickbacks or transfer assets.

It is crucial to note that in such cases, timing is usually of essence. It is beneficial to work with third party firms who are experienced in and have established working relationships with authorities. Grapevine Asia assists companies victimized by fraud by promptly liaising with PRC authorities to retrieve crypto account information when possible, and by tracking cryptocurrency transactions and flows using accumulated transaction data.

Grapevine Asia Partners is a boutique risk consultancy established by a team of skilled corporate-intelligence research analysts and anti-fraud experts, who collectively have decades of experience in Asia, particularly in Greater China and Southeast Asia. Our firm actively monitors policy changes and regulatory investigations involving multinational companies. Aside from collecting, interpreting, and analyzing up-to-date information from credible sources, Grapevine Asia also supports clients in liaising with law enforcement and regulatory agencies to facilitate case resolution. We have extensive experience in dealing with law enforcement, particularly on matters involving embezzlement, private sector bribery, trade secrets theft, and intellectual property infringement.