A major diplomatic and financial conflict is brewing between China and the United States over a cache of 127,426 Bitcoin, currently valued at over $13 billion. China has officially accused the U.S. of orchestrating a 2020 cyberattack to steal the funds from a domestic mining pool, an allegation that intertwines cybersecurity, international politics, and the crypto market.

The Original Hack and a Belated Seizure

The dispute traces back to December 2020, when the Chinese mining pool LuBian was hacked, resulting in the loss of 127,426 BTC. At the time, the stolen assets were worth approximately $3.5 billion. For years, the culprits remained unidentified, with blockchain experts speculating that the theft was caused by a technical flaw, such as a “weak-key” vulnerability, or an inside job. The case remained cold for years.

In late 2025, the U.S. Department of Justice (DOJ) announced it had seized 127,271 BTC, which it claimed was linked to criminal activities conducted by a Cambodia-based organization known as the Huione group. The DOJ framed the operation as the largest Bitcoin confiscation in history and part of a broader campaign against online scams, but it provided few details about the origin of the hack or the specific crimes involved.

China Alleges State-Sponsored Theft

China swiftly and publicly rejected the U.S. government’s explanation. The National Computer Virus Emergency Response Centre (CVERC) issued a statement accusing the United States of being the actual perpetrator of the 2020 hack. According to CVERC, the theft was a state-level cyber operation, and the subsequent seizure was merely a tactic to legitimize the stolen assets under the guise of law enforcement.

This seizure significantly increased the U.S. government’s official Bitcoin holdings to 325,000 BTC, a reserve now worth around $36 billion. The move has amplified concerns among crypto advocates about government influence over a decentralized currency and has become a point of contention in wider geopolitical discussions between the two nations.

Market Reacts to Diplomatic Strain

The escalating dispute is already creating ripples in the cryptocurrency market. Bitcoin’s price has seen a slight decline, trading at $105,000 after a 0.72% drop in the last 24 hours. The market volatility reflects investor fears that the diplomatic standoff could lead to stricter crypto regulations or disruptions in cross-border transfers.

Further signaling investor caution, U.S.-based Bitcoin and Ethereum exchange-traded funds (ETFs) experienced outflows totaling $755 million this week. While analysts attribute these movements to the growing uncertainty, some suggest the long-term effect could reinforce Bitcoin’s narrative as a “digital gold” and a hedge against geopolitical instability.