Main Points：
- QDII as a Gateway: There is a possibility that the Chinese government may permit the trading of cryptocurrency ETFs in Hong Kong via the Qualified Domestic Institutional Investor (QDII) program, allowing mainland investors to access crypto assets without directly holding the underlying asset.
- Regulatory Contrasts: Although China has been skeptical of cryptocurrencies, it has been supportive of blockchain technology and has built the infrastructure for regulated trading abroad.
- Capital Control Considerations: Key to this model is preventing capital outflow from China. As long as funds remain within the country—managed by licensed intermediaries—there appears to be no fundamental reason why Bitcoin ETFs could not be allowed, similar to US ETFs under QDII.
- Existing Trading Mechanisms: Mainland investors already trade US ETFs via QDII and through stock connect programs with Hong Kong. This model may be extended to crypto ETFs as well.
- Custody by Intermediaries: Under such a system, investors would not directly hold cryptocurrencies; instead, licensed securities firms would provide custody, paralleling current practices in foreign stock trading.
1. Introduction: A New Frontier for Chinese Crypto Investment?
Chinese regulatory authorities have long maintained a cautious stance on cryptocurrencies, even as they actively promote blockchain technology. While direct trading in digital assets remains restricted in mainland China, alternative channels have emerged. One such channel is the QDII program, which currently allows qualified institutional investors to purchase US ETFs using Chinese yuan without transferring funds abroad. This raises an intriguing question: if US ETFs can be traded through QDII, why not allow a Bitcoin ETF as well?
At the “Consensus Hong Kong” conference, Yifan He, CEO of Red Date Technology, suggested that the main challenge is not the asset itself but the strict capital controls designed to prevent free capital outflow. He argued that if a system can be structured so that investments remain domestically managed—even if the underlying asset is traded on a regulated platform abroad—then there is no inherent reason why a Bitcoin ETF should be excluded.
2. Capital Controls and Existing Trading Models
China employs two primary systems to enable domestic investors to trade foreign securities. The first is QDII, which allows qualified domestic institutional investors to purchase US ETFs using Chinese yuan. The second system, the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect programs, enables mainland investors to trade Hong Kong stocks directly with transactions settled in Chinese yuan.
Yifan He noted that the key factor in both systems is ensuring that capital does not freely flow out of China. When applied to cryptocurrency investments, this logic suggests that as long as funds remain under the control of regulated intermediaries, there is no reason why Bitcoin ETFs should be treated differently from other investment products.
In this potential model, Chinese investors would purchase the crypto ETF without directly holding the digital asset. Instead, custody would be handled by licensed securities firms, mirroring the current approach used for trading US ETFs through QDII. This mechanism could provide a controlled environment for crypto exposure while preserving the integrity of China’s capital controls.
3. A Potential Compromise for a Cautious Market
With over 200 million individual investors in China and ongoing economic stimulus measures, a carefully regulated crypto ETF—traded through a Hong Kong sandbox—could offer a viable compromise. By leveraging existing frameworks, such as QDII and stock connect programs, China might allow domestic investors to gain exposure to Bitcoin without contravening strict capital flow regulations.
At a recent session of Consensus Hong Kong, experts suggested that while two years ago the possibility of such a move might have been considered zero, current discussions imply that there is now a greater than 50% chance that, within three years, China could permit Bitcoin ETFs under controlled conditions. This would mark a significant evolution in China’s approach to digital assets.
4. A Future of Controlled Crypto Exposure
While the Chinese government remains cautious about cryptocurrencies, its support for blockchain technology and its existing investment channels indicate that a regulated Bitcoin ETF could eventually be allowed. Through mechanisms like QDII, Chinese investors may soon be able to invest in Bitcoin ETFs without directly owning the digital asset, as funds remain within domestic regulatory oversight.
This potential development would represent a carefully measured compromise—a way to stimulate economic activity and digital asset exposure while maintaining the necessary capital controls to preserve the stability of the renminbi. The coming years may well see China’s financial regulators exploring these avenues further, potentially opening a new chapter for crypto investment in the country.
