Since last summer, the dollar price of Bitcoin has started its unstoppable upward trend and kept breaking new highs. In such a frenetic market, it is not difficult for investors to make a profit, unless they choose to go short.
Ironically, that was exactly what Gao Ziyang, an executive of a blockchain security company in Chengdu, did. To add insult to injury, he chose to short Bitcoin last August with embezzled state-owned cryptocurrency asset that was originally seized by the government his company was working with, shocking the crypto circles nationwide, with some even joking that the executive succeeded in "reaping the police as chives."
A crypto influencer named Biquandeliangxin (币圈的良心) published an article describing how Gao Ziyang, chief marketing officer of Lian An Tech, misappropriated digital assets confiscated by the police in order for him personally to short Bitcoin and eventually lost more than 300 million yuan.
Known as one of the four major blockchain security giants in China, Lian An provides comprehensive auditing services for blockchain technology, and also boasts its deep connection with numerous national regulators and government bodies including China's Ministry of Industry and Information Technology, the Cyberspace Administration of China, as well as the Ministry of Public Security, assisting the police across the country in fighting crypto crimes. The Chengdu-based company has received investments from reputable Chinese enterprises including Fosun Group and Lenovo.
Normally, virtual currency assets seized by the police in respective cases must be converted into fiat money before they can be turned over to the national treasury, and temporary holders of these assets such as local law enforcement agencies don't have the means or the expertise in properly handling them. Therefore, these agencies would assign the digital assets to several top blockchain security companies for safekeeping and exchange cryptos for fiat currency at the end of the year.
Gao, who got his Juris Master's degree from Guangxi University, started shorting Bitcoin in August last year, when the crypto just broke $12,000, according to reports. According to the executive's transaction records on the cryptocurrency exchange OKEX obtained by the Bazhong police department in Sichuan Province, Gao initially operated a trading leverage at 10 times, and subsequently falling into madness and traded with up to 100 times leverage, hoping to turn huge losses into massive profits.
Market trend did not develop as he would have wanted. The rise of the Bitcoin price squeezed short-sellers hard, especially those with high leverage.
Last year, the Bazhong police cracked down on the illegal exchange Tokenbetter and seized crypto assets worth more than 100 million RMB. A similar case that involved about 160 million RMB was also pursued by the police in Hegang, Heilongjiang Province. The crypto proceeds of both cases, adding up to roughly 300 million RMB at the time or about 500 million at today's price, were entrusted to Lian An. The company was also safekeeping proceeds of multiple other cases.
It would appear that most of those assets were embezzled and ultimately evaporated, according to multiple well-connected sources within the crypto circles in China.
The influencer alleged that at one time, Gao lied to the police and said that the assets were stolen in a crypto heist. He was allegedly arrested on suspicion of embezzling state-owned assets and is currently detained in Bazhong, though no available public source confirms that. Lian An did not respond to requests for comment.
Embezzlement of state-owned assets is not new in China and is a top priority target for crackdowns during China's anti-corruption state actions. However, Gao's case would be the first time many people hearing about that the state actually has assets in the form of cryptocurrencies (besides the Digital RMB, a form of digitized fiat money, obviously.)
These assets mostly come from governments around the country clamping down on what they deemed as non-compliant crypto exchanges and trading platforms large or small, many of which are basically pyramid schemes that were able to gather unbelievably huge amounts of money. For example, the police department in Yancheng, Jiangsu Province seized illegal Bitcoin proceeds of PlusToken, liquidated the asset when Bitcoin was at a relatively lower price, and was still able to turn over to the national treasure roughly 4.2 billion US dollars. If it was today, those assets would amount up to more than 300 billion RMB, or 10 times the actual value.
(The illegal proceeds are generally not returned to their former users since they are usually defined as participants in pyramid schemes rather than victims.)
It is challenging for regulators and law enforcement agencies to effectively oversee blockchain technology by relying on third parties. "By strengthening the research and governance of new technologies, as well as international cooperation and exchanges, the systematization and integrity of supervision will be further improved," Yao Shangkun, founder and chairman of Guoxiong Capital, said.