China May Offer Bitcoin Access via Hong Kong ETFs
Beijing may be paving the way for mainland Chinese traders to gain exposure to Bitcoin (BTC) without directly allowing crypto exchanges to operate within the country. According to an expert, this could be achieved through the Qualified Domestic Institutional Investor (QDII) program, potentially enabling the trading of Hong Kong-based crypto ETFs.
The current situation sees a complex relationship between China, blockchain, and crypto. While the Chinese government has banned crypto trading, it has simultaneously invested in blockchain technology.
Yifan He, CEO of Red Date technology at Consensus Hong Kong (CoinDesk, Personae Digital)
This potential shift capitalizes on Hong Kong’s regulated crypto markets. Yifan He, CEO of Red Date technology, speaking at Consensus Hong Kong, highlighted the importance of capital controls applied to crypto. The core idea is that if capital never leaves China, then it can be managed similarly to how U.S. ETFs are currently handled using the QDII program. This could bring China’s 200 million retail investors into a regulated Bitcoin market.
How it Might Work
China’s current system allows investors to buy U.S. stocks through the QDII program, using RMB. Another system, the Shanghai-Hong Kong and Shenzhen-Hong Kong Connect, enables mainland investors to buy and sell Hong Kong stocks through mainland securities firms, with all trades settled in RMB.
He explained that the key is to prevent funds from moving freely in and out of the country to stabilize RMB. He pointed out that Hong Kong’s crypto ETFs, because they have in-kind redemptions, have not been allowed in the mainland. “What’s the difference between a Hong Kong-regulated stock and a Hong Kong-regulated crypto asset?” he asked. If there is a system to buy and sell in RMB, but money never moves out of China, it functions as another regulated investment product.
Instead of self-custody, crypto purchases would be held by an intermediary, such as a licensed securities firm, mirroring China’s approach to stock and ETF investments. The security company will hold the assets on behalf of the investors.
Blockchain vs. Crypto
China has endorsed blockchain technology, while being wary of crypto. As He put it, “We don’t allow guns in China, but we can still make steel.” The underlying technology is not regulated, but specific applications are. He noted that in conversations with financial regulators, there’s increasing attention being paid to BTC and other digital assets.
He estimated two years ago that the chances of China unbanning bitcoin would be “zero chance.” Now, he believes there’s a greater than 50% chance in three years.
