Key Points :
- In 2020, approximately 127,000 Bitcoin (BTC) were stolen from China’s LuBian Mining Pool (LuBian) mining pool.
- The Chinese cybersecurity agency National Computer Virus Emergency Response Center (CVERC) now accuses the U.S. government of covertly acquiring those stolen coins in what it calls a “state-level hacking operation.”
- The U.S. maintains the coins were lawfully seized from an alleged fraud case involving Cambodian businessman Chen Zhi, and denies any hacking by state actors.
- Key on-chain movements: the stolen BTC sat dormant for years, then in mid-2024 were transferred to addresses tagged as U.S. government-controlled by on-chain investigator Arkham Intelligence.
- For crypto investors and blockchain practitioners, the case raises major questions about sovereign risk, asset control, on-chain transparency, and the narrative of digital assets as geopolitical tools.
1. Background: The LuBian Hack and 2020 Theft
In December 2020, LuBian Mining Pool — a Chinese-based mining pool that reportedly accounted for roughly 6 % of the global Bitcoin hash rate at one point — was the target of a hack that resulted in the theft of approximately 127,000 BTC. At the time, the stolen value was reportedly around US $3.5 billion, though by 2025 valuations that same stash is worth more than US $13 billion.
CVERC characterizes the attack as being executed by a “state-level hacking organization,” citing the sophistication of the exploit and the fact that the funds remained dormant for years rather than being immediately laundered or dispersed.
For blockchain investors and practitioners, this event is a reminder that even large mining pools with significant infrastructure footprint are vulnerable—and that private-key generation weaknesses, hot wallets, and on-chain exposures remain real risks despite decentralization narratives.
2. China’s Allegation: U.S. Involvement and State-Level Hacking
CVERC’s recent report alleges that the U.S. government not only intercepted the stolen funds but was involved from the early stage of the operation. According to the report, the timeline and behavior of the coins (4+ years dormant, sudden transfer in 2024) do not align with typical criminal hacking but rather resemble a state-level operation.
Specifically, the report states:
“The U.S. government may have already used hacking techniques as early as 2020 to steal the 127,000 bitcoins held by Chen Zhi.”
China argues that rather than returning the funds or acknowledging hacking, the U.S. quietly seized them under legal pretences — thereby using the incident as a geopolitical power play. This accusation shifts the narrative from a standard crypto-fraud & hack story into one of international rivalry, digital asset sovereignty, and systemic risk for blockchain networks.
3. U.S. Response: Legal Seizure and Denial of Hacking
The U.S. government’s position is that the coins were confiscated as part of a law-enforcement action against Chen Zhi — who is alleged to have been involved in fraud and money-laundering activities. U.S. authorities say this was not a hacking or a state-level exploit of funds, but rather the legal process of forfeiture of criminal assets.
From the official stance: no admission of hacking, no acknowledgement of state-level seizure, and no public detailed forensic explanation of exactly how access to the coins was obtained. That lack of transparency increases uncertainty for blockchain practitioners and asset managers: if a sovereign power can quietly take control of large amounts of crypto holdings through ambiguous means, what does this mean for asset security in decentralized systems?
4. On-Chain Behaviour & Market Implications
One critical element of this saga is the on-chain timeline of the stolen coins. After the theft, the 127 k BTC reportedly remained untouched for about four years. Then, around June–July 2024, the coins were transferred to new addresses that blockchain tracer Arkham Intelligence labeled as belonging to the U.S. government.
This unusual behaviour — long dormancy, sudden move to “government tagged” wallets — is flagged by China as inconsistent with typical hacker patterns, and instead consistent with pre-planned state operations. From the investment/infrastructure viewpoint, this suggests:
- A potentially large quantity of BTC (≈ 0.65 % of the total supply) is locked or controlled by state-actors, reducing free-floating supply.
- The market interpretation: short-term volatility risk increases because “unknown entity holds large stash” creates uncertainty; long-term supply impact could be bullish if coins remain locked/unmoved.
- For blockchain infrastructure projects: this raises questions about custody, jurisdiction, sovereign intervention in on-chain assets.
5. What This Means for Crypto Investors & Blockchain Practitioners
5.1 Strategic asset status of Bitcoin
The episode reinforces a shift: Bitcoin and major crypto assets are increasingly being viewed as strategic digital commodities, subject to national-level control, not just decentralised finance experiments. If states can—with or without legal processes—seize or take control of large coin volumes, then asset sovereignty matters more than ever.
5.2 Sovereign risk enters crypto asset planning
Whether you are evaluating a new crypto asset, building a blockchain application, or designing token-economics for a startup, this case underscores that sovereign actions (regulators, intelligence agencies, jurisdictional seizure) can override on-chain decentralisation assumptions.
5.3 Supply tightness & market timing
With coins tied up in disputes or subject to state-control, supply liquidity may tighten. For traders seeking next-wave opportunities, this could mean:
- Potential bullish momentum if locked coins never re-enter market
- Short-term risk of volatility from “unknown” custodial shifts
5.4 Infrastructure & custody design for token projects
If states can seize crypto holdings, token projects and wallets must plan staking/treasury/custody models that minimise jurisdictional risk, maximise transparency, and maybe incorporate “sovereign resilience”. For your project (such as your current wallet or token build), this means factoring in that large holdings might be compromised not by hacker exploit but by legal/seizure mechanisms.
6. Recent Trends & Broader Context
Beyond this specific case, several adjacent trends are worth noting for practitioners and investors:
- On-chain analytics firms are increasingly tagging wallets as belonging to governmental entities, prison funds, or intelligence operations. The transparency frontier is expanding but so is regulatory/state quadrature around crypto.
- Supply chain of Bitcoin: research shows that dormant wallets holding large coin volumes may represent “stranded” supply or potential systemic risk if reactivated.
- Regulatory narrative: Many states are shifting from viewing crypto purely as financial innovation to seeing it as national-security infrastructure (settlement layer, sanctions avoidance, weaponisation). This case between China and the U.S. is emblematic of that shift.
- Token projects and DeFi networks are increasingly emphasising on-chain governance, decentralised custody, multi-jurisdictional custody to hedge the risk of unilateral state seizure.
For investors scanning for “next big crypto asset” or blockchain application: the intersection of geopolitics × token economics × custody architecture is becoming a key dimension of evaluation—beyond purely technical or use-case metrics.
7. What Should Investors and Builders Do?
- Due diligence: When investing in an asset or token project, check not only the tokenomics and protocol but also where assets are held, custody jurisdiction, whether any stake/tranche is subject to state seizure risk.
- Portfolio diversification: Recognise that large-scale state interventions in crypto are possible; allocate accordingly.
- Technical architecture: If you are building and designing wallets, token issuance, or DeFi apps, incorporate multi-jurisdictional custody, decentralised key generation, transparency of treasury flows, and governance models that pre-empt risks of seizure or forced transfer.
- Monitor on-chain flows: Use analytics to watch for large dormant wallet movements, especially those that could affect market liquidity or contradict decentralised assumptions.
- Scenario planning: Consider what happens if a major tranche of coins (e.g., millions of tokens) is seized or moved. Evaluate how that affects supply, market psychology, and utility of blockchain networks you are involved with.
8. Conclusion
The unfolding dispute between China and the U.S. over 127,000 BTC allegedly tied to a 2020 mining pool hack has elevated what might have been a crypto-fraud story into a full-blown geopolitical confrontation. For crypto asset investors and blockchain practitioners, the key takeaway is that digital assets are not insulated from sovereignty and state power—even if they ride on decentralised networks. Whether you’re searching for the next income-generating token, building a wallet or blockchain application, or simply evaluating ecosystem risk, the matrix now includes nation-state intervention, token supply control, and on-chain transparency of custody. Recognising these forces and designing strategy accordingly may well be what separates successful crypto ventures from ones that underestimate systemic risk.
