When Nations Begin Seizing Bitcoin: The Confiscation of 127,271 BTC Marks the Dawn of the ‘On-Chain Sovereignty Era’

A lawsuit filed by the U.S. District Court for the Eastern District of New York has sent shockwaves through the crypto world.

On October 14, the U.S. Department of Justice announced criminal charges against Chen Zhi, founder of Cambodia’s Prince Group, and applied to confiscate 127,271 BTC under his control, valued at approximately $15 billion, making it the largest judicial seizure of bitcoin in the world.

“The most significant virtual asset seizure in history.” The Department of Justice used highly cautionary language in its announcement. Notably, officials emphasized that this batch of BTC was not stored on an exchange, but had long been held by Chen Zhi himself in non-custodial private wallets. This seems to shake the crypto community’s core belief: “Not your keys, not your coins.”

In reality, even without cracking cryptographic algorithms, the U.S. government can still complete the “judicial transfer” of assets through legal procedures. Through on-chain tracking and international cooperation, law enforcement agencies identified bitcoins scattered across multiple addresses, all controlled by Chen Zhi. The court then issued a seizure order, legally transferring these assets to addresses controlled by the U.S. government, entering judicial custody pending a final civil forfeiture ruling.

Meanwhile, the U.S. Treasury’s Office of Foreign Assets Control designated the “Prince Group” as a transnational criminal organization and imposed sanctions on 146 related individuals and entities; the U.S. Financial Crimes Enforcement Network, under the Patriot Act, designated Huione Group as a “primary money laundering concern,” banning it from accessing the U.S. dollar clearing system. The UK also simultaneously imposed asset freezes and travel bans on Chen Zhi and his family members.

In the context of the crypto market, this moment is highly symbolic. It is not only law enforcement against a criminal group, but also a public demonstration of state agencies directly exercising control over on-chain assets. 127,271 BTC—a figure significant enough to sway market sentiment and regulatory direction—has now been written into bitcoin regulatory history as a key milestone.

From Fujian Businessman to Scam Empire: Chen Zhi’s Capital Layout and Industrialized Crimes​

The U.S. Department of Justice’s indictment reveals another side of Chen Zhi and his Prince Group.

According to Southeast Asian media reports, Chen Zhi was once a “new tycoon” in Cambodia, with his Prince Group touted as a multinational conglomerate spanning real estate, finance, and other sectors. However, the DOJ alleges a “dual-layer operational logic” behind the scenes: outwardly a legitimate business empire, but internally a fund control and clearing system serving scam proceeds.

Chen Zhi, originally from Fujian, rose to prominence in Cambodia through the gambling and real estate industries. After obtaining Cambodian citizenship in 2014, he quickly secured multiple development permits and financial licenses through political and business connections. He did not stop at local business, but built a complex cross-border asset structure via British Virgin Islands companies, Singaporean holding structures, and is suspected to hold UK residency, thus creating barriers between different jurisdictions. In April 2024, the King of Cambodia even issued a royal decree appointing Chen Zhi as an advisor to Senate President Hun Sen, demonstrating his deep political and business roots locally.

On April 19, 2024, King Norodom Sihamoni of Cambodia issued a royal decree appointing Duke Chen Zhi, Chairman of Prince Group, as an advisor to Senate President Prince Hun Sen

According to the indictment, the telecom fraud system Chen Zhi established in Cambodia operated on an “industrialized” scale. DOJ documents repeatedly mention the concepts of “parks” and “phone farms,” with highly systematized operational models:

• ​Physical Bases​: So-called “parks” registered under the guise of outsourcing services, but actually operated under closed management.
• ​Labor Control​: Foreign workers lured by “high-paying jobs” were often deprived of personal freedom upon entry.
• ​Standardized Operations​: Each operator managed hundreds of “relationship lines,” using unified scripts for social engineering and investment inducement, with processes resembling customer relationship management.
• ​Technical Camouflage​: “Phone farms” used large numbers of SIM cards and IP proxies to create virtual identities and locations, masking their true origins.

This was not a traditional ragtag scam gang, but a clearly divided “on-chain scam factory.” All scam funds ultimately flowed into the Prince Group’s financial transit layer. Reports indicate that Chen Zhi’s criminal proceeds were used for extremely lavish spending, including luxury watches, yachts, private jets, and even Picasso paintings auctioned in New York.

Prince Group’s two-tier business structure overview

​Tracing the Funds: From Hacking to Scam Money Laundering

The origin of the 127,271 BTC in this case is particularly complex. According to reports from on-chain analytics firms such as Elliptic and Arkham Intelligence, these bitcoins closely overlap with the 2020 theft from a large mining company called “LuBian.”

Records show that in December 2020, LuBian’s core wallet experienced abnormal transfers, with about 127,426 BTC stolen. On-chain, LuBian even sent a small transaction with a message to the hacker address: “Please return our funds, we'll pay a reward.” These massive funds then lay dormant for a long time, only becoming active again in mid-2024, with their movement paths overlapping with wallet clusters controlled by Prince Group. (Latest update: On October 15, after three years of dormancy, LuBian-related wallets transferred all 9,757 BTC, worth $1.1 billion)

This means the investigation uncovered not just a simple “scam-money laundering” chain, but a more complex path: “Hacker theft of mining funds → long-term dormancy → absorption into a criminal organization’s fund pool → attempts to launder via mining and OTC trading”. This finding elevates the case’s complexity: it involves both hacking and mining security vulnerabilities, and reveals how gray-market exchange networks absorb and conceal huge sums of suspicious origin.

How Was the Bitcoin Seized?

For the crypto industry, the far-reaching impact of this case goes beyond taking down a scam kingpin. More importantly, judicial and intelligence agencies have fully demonstrated a complete process for handling on-chain assets: On-chain tracing → Financial blockade → Judicial takeover. This is a real-world closed loop seamlessly connecting “on-chain tracking capabilities” with “traditional judicial power.”

Step One: On-chain Tracing—Locking Down the “Fund Container”​​

The anonymity of bitcoin is often misunderstood. In fact, its blockchain is a public ledger, with every transaction leaving a trace. The Chen Zhi group attempted to launder money using the classic “spray-funnel” model: dispersing funds from the main wallet like a watering can into a vast number of intermediary addresses, then, after a brief pause, reconsolidating them into a few core addresses like streams merging into a river.

This operation may appear complex, but from an on-chain analysis perspective, frequent “scatter-gather” behavior actually creates unique graph patterns. Investigative agencies (such as TRM Labs, Chainalysis) use clustering algorithms to accurately map “fund return flows,” ultimately confirming that these seemingly scattered addresses all point to a single controlling entity—the Prince Group.

Step Two: Financial Sanctions—Cutting Off the “Cash-out Channel”​​

After locking down the on-chain assets, U.S. authorities initiated dual financial sanctions:

• ​Treasury (OFAC) Sanctions​: Chen Zhi and related entities were added to the list, prohibiting any U.S.-regulated institution from transacting with them.
• ​FinCEN Section 311​: Key entities were designated as “primary money laundering concerns,” completely cutting off their access to the U.S. dollar clearing system.

At this point, while these bitcoins could still be controlled by private keys on-chain, their most important value attribute—the ability to be exchanged for U.S. dollars—was frozen.

Step Three: Judicial Takeover—Completing the “Ownership Transfer”​

The final forfeiture did not rely on brute-force cracking of private keys, but rather law enforcement agencies directly taking over “signing rights” to the assets through legal procedures (such as court orders). This means law enforcement successfully obtained mnemonic phrases, private keys, or controlled hardware wallets, enabling them to initiate valid transactions just like the original asset owner, transferring the bitcoin to government-controlled addresses.

However, in the Chen Zhi case, the U.S. government has not yet disclosed full details of how it obtained the private keys. Thus, some in the community, based on previous reports of security vulnerabilities at Lubian.com, speculate that law enforcement exploited such a vulnerability to crack the private keys.

At the moment this transaction is confirmed by the blockchain network, “legal ownership” and “on-chain control” are unified. The ownership of these 127,271 BTC, in both technical and legal senses, officially transferred from Chen Zhi to the U.S. government. This combination clearly demonstrates: in the face of state power, “on-chain assets are unseizable” is not absolute.

After Seizure, Where Will the Bitcoin Go?

After 127,271 BTC were transferred from the scam empire’s wallet to a “U.S. Government Controlled Wallet,” a more strategically significant question emerges: the ultimate destination of this massive asset will reveal how the U.S. government positions bitcoin—is it “stolen goods” to be liquidated, or a “strategic asset” to be held?

Historically, the U.S. government has handled seized digital assets in several ways. In the Silk Road case, bitcoins were transferred to private institutional investors via public auctions after judicial proceedings—Tim Draper was one such auction buyer. In the Colonial Pipeline ransomware case, the recovered BTC was temporarily held in government accounts for evidentiary and Treasury record purposes. As for FTX, the current status remains judicial custody, with no official confirmation that the seized assets will be claimed by the government; most of the assets should theoretically be used for user compensation in creditor settlement, not directly added to the national treasury.

Unlike the above cases where seized bitcoin was disposed of via public auction (such as the Silk Road case), this case faces a key variable: In March 2025, the White House has already signed an executive order establishing a “strategic bitcoin reserve” mechanism. This means that the BTC in the Chen Zhi case is likely to be held as a state reserve asset rather than simply auctioned off.

Thus, the U.S. is building an unprecedented “on-chain asset regulatory closed loop”: locking targets via on-chain tracking—cutting off fiat exits through sanctions—completing legal ownership deprivation via judicial procedures—finally transferring assets into government control. The core of this process is not to restrict market circulation, but to redefine the legal ownership of “key control.”

Once judicial proceedings confirm the assets as criminal proceeds, their nature shifts from “privately controlled cryptocurrency” to “digital asset certificates under national jurisdiction.”

With the transfer of 127,271 BTC, the U.S. has become the world’s largest sovereign holder of bitcoin. This is not only an unprecedented seizure, but also heralds the beginning of an era of systematic state control over on-chain assets.