China should accelerate the legalization of Bitcoin ETF in the mainland.

Introduction

Cryptocurrencies such as Bitcoin are increasingly entering the global mainstream financial system. In mainland China, cryptocurrency trading has been strictly restricted or even banned since 2017. However, internationally, multiple regions including the United States, Canada, Europe, and Hong Kong are actively launching compliant investment products such as Bitcoin exchange-traded funds (ETFs) to meet investor demand, viewing Bitcoin as part of a strategic asset. In contrast, the current comprehensive ban on cryptocurrencies in mainland China may maintain financial order in the short term, but in the long run, it may miss significant opportunities.

This article will argue that China should promptly legalize Bitcoin ETFs in the mainland, allowing residents to invest in and hold cryptocurrencies through compliant financial products. This not only utilizes private capital to indirectly reserve strategic assets for the country, meets the genuine market demand, and prevents risks associated with underground gray transactions, but also leverages Hong Kong's regulatory advantages to achieve a win-win situation for the country, investors, and the Hong Kong market.

International Trends: Bitcoin Strategic Reserves

According to publicly available blockchain data and legal disclosures, governments around the world currently hold approximately 463,000 bitcoins, accounting for about 2.3% of the total bitcoin supply. This amounts to hundreds of billions of dollars in sovereign wealth, with bitcoin playing an increasingly important role in national asset strategies and sovereign accumulation.

The United States and China rank first and second: The U.S. government has confiscated nearly 200,000 bitcoins through multiple law enforcement actions (such as the Silk Road case) and, in March 2025, signed an executive order by the president to include them in the Strategic Bitcoin Reserve, marking the official recognition of bitcoin as a national strategic asset rather than auctioning it off.

The Chinese government seized over 190,000 bitcoins when it dismantled the PlusToken scheme in 2019, making it one of the largest cryptocurrency confiscation cases in history. Although trading and mining are banned in mainland China, a significant portion of the seized bitcoins is reportedly still under government control, and some analysts believe that China may actually be the second largest holder of bitcoin reserves in the world, after the United States.

Some countries, including Bhutan, the United Kingdom, and Ukraine, are quietly accumulating Bitcoin: Bhutan has obtained over 12,000 Bitcoins through its sovereign investment agency by utilizing hydropower mining, accounting for more than 30% of its GDP. UK law enforcement once seized 61,000 Bitcoins at once and discussed holding them long-term...

These trends indicate that Bitcoin is gradually transforming from a speculative asset in the private sector to "digital gold" and a strategic resource in the eyes of various governments.

The international capital market is also fully embracing Bitcoin ETFs

Canada took the lead as early as 2021, approving the world's first physical Bitcoin ETF (Purpose Bitcoin ETF), which became very popular after its listing, and by early 2025, its assets under management had reached approximately 2.6 billion CAD. Subsequently, the Canadian market launched more than ten cryptocurrency ETFs, covering Bitcoin and Ethereum among others, fully meeting the demand of investors who wish to invest in crypto assets through traditional accounts.

In Europe, London-based asset management company Jacobi listed the first spot Bitcoin ETF in Europe on the Euronext Amsterdam in August 2023, marking the beginning of regulated Bitcoin investment channels in major European financial markets.

What is more striking is the shift in the U.S. market: In January 2024, the U.S. Securities and Exchange Commission (SEC) approved the first spot Bitcoin ETF, officially bringing Bitcoin into the mainstream U.S. securities market. Subsequently, multiple companies, including asset management giant BlackRock, launched Bitcoin ETFs one after another. According to statistics, as of November 2024, the net asset size of Bitcoin ETFs in the U.S. market has surpassed $100 billion, making significant strides to catch up with traditional gold ETFs. Among them, BlackRock's iShares Bitcoin Trust (IBIT) attracted as much as $74.9 billion in funding in less than a year, becoming one of the most successful new ETFs in history, generating $187 million in first-year fee income for BlackRock.

The price of Bitcoin has risen accordingly - after the US policy shifted to a favorable stance, the price of Bitcoin broke through the $100,000 mark by the end of 2024, recently reaching a historic high of $120,000. Clearly, allowing compliant investment channels can unleash significant market demand and capital and further solidify Bitcoin's status as the "king of digital assets."

In summary, around the world, on one hand, governments are increasing their Bitcoin reserves, viewing it as a strategic asset; on the other hand, major financial centers are competing to launch Bitcoin ETFs and other products, integrating cryptocurrencies into the compliant financial system. If China continues to impose a blanket ban on crypto investments, it will inevitably fall behind in this emerging strategic arena. Conversely, timely approval of Bitcoin ETFs will allow Chinese residents and capital markets to keep pace with international developments, seizing the initiative in national strategy and financial innovation.

Urgent Investment Demand: High Net Worth Individuals and Companies Desire Compliant Investments

As Bitcoin is increasingly recognized by more institutions and investors, its investment value and risk-resistant characteristics are highlighted, sparking strong interest from high-net-worth individuals and companies.

Historically, Bitcoin has far outperformed traditional assets in terms of long-term returns since its inception: over the past decade, its price has increased by more than 26,000%, with an average annual return of around 230%, significantly higher than traditional assets such as stocks and gold during the same period. Although Bitcoin's price is highly volatile, long-term holders have achieved substantial returns, earning it the title of one of the "best-performing assets of the 21st century."

Moreover, at the macroeconomic level, Bitcoin exhibits anti-inflation properties. Academic research has analyzed the relationship between inflation and asset prices using a vector autoregression model, finding that Bitcoin prices significantly rise after being impacted by increasing inflation rates, demonstrating that Bitcoin possesses hedging characteristics against the devaluation of fiat currency due to inflation. This is similar to the role of gold as an anti-inflation asset, but Bitcoin also has features such as a constant supply and decentralization, making it unaffected by the monetary policies of any single government. Therefore, many investors view Bitcoin as "digital gold" or a portfolio diversification tool to hedge against fiat currency devaluation and systemic risks.

High-net-worth individuals and enterprises in China are equally showing strong interest in allocating Bitcoin. Globally, listed companies and asset management institutions are increasing their holdings of Bitcoin as part of their asset allocation, such as MicroStrategy in the United States, which has cumulatively purchased over 150,000 Bitcoins as cash reserves, and Tesla, which also holds a significant amount of Bitcoin. Domestically, despite policies prohibiting trading, many wealthy individuals are acquiring crypto assets through various channels.

A lot of large funds in China are currently "nowhere to go", against the backdrop of a sluggish domestic stock market and a turbulent real estate market, these funds are seeking new investment outlets, and the Bitcoin ETF launched in Hong Kong "has opened the door for many investors holding RMB." Especially during 2022-2023, the three major A-share indices in China performed poorly, and risks in the real estate market frequently arose, prompting many investors to pay attention to overseas crypto investment opportunities. This indicates a genuine demand for allocation in non-traditional assets such as Bitcoin.

However, due to the lack of legal and compliant ways to invest in Bitcoin in mainland China, this demand has been forced to shift towards underground or gray channels.

In recent years, a large number of Chinese investors have purchased cryptocurrencies through offshore platforms or over-the-counter transactions. Data shows that even under strict bans, mainland China remains the second largest Bitcoin mining country in the world, accounting for about 10% of global computing power, indicating that there is still a considerable-sized crypto community domestically. Even more astonishing is that among the users of the collapsed overseas exchange FTX, at least 8% are from mainland China—this means that despite policies prohibiting it, a considerable number of Chinese residents are still engaging in crypto trading on overseas exchanges via VPNs and other means. Furthermore, there exists a clandestine chain where stablecoins like USDT are exchanged for Bitcoin through the over-the-counter market. These underground activities carry significant risks: investors are prone to fraud or exchange collapses (such as the FTX incident), and the transfer of funds overseas also affects foreign exchange regulation and financial security.

Instead of watching the huge investment demand breed risks underground, it is better to guide it into a legal and compliant framework. Providing products like a Bitcoin ETF regulated by the state is a win-win solution that meets demand and mitigates risks.

On one hand, investors can conveniently purchase ETF products through domestic brokers or banks to gain exposure to Bitcoin, without worrying about the risk of trading platforms running away or asset custody. The underlying assets of the ETF are custodied by licensed financial institutions, and the trading is transparent, which reduces the technical barriers and security risks associated with holding cryptocurrencies directly.

On the other hand, regulatory authorities can monitor the flow of funds and the operation of products in real-time to prevent money laundering and other illegal activities, and can impose requirements on investor suitability. Through compliant channels, the government can also tax relevant investment income to achieve tax revenue.

In short, legalizing Bitcoin ETFs can meet market investment demands while bringing crypto assets under regulatory oversight, reducing the risk of the financial system being impacted by underground trading.

Seizing Opportunities in Hong Kong: Achieving a Triple Win under a Compliance Framework

The introduction of Bitcoin ETFs in mainland China can actually leverage Hong Kong as a special platform, achieving a situation that neither violates the current regulatory framework nor hinders a win-win situation for the mainland, Hong Kong, and investors.

As an international financial center, Hong Kong has taken an open attitude towards virtual assets in recent years: starting in 2023, Hong Kong implemented a new cryptocurrency regulatory system that allows qualified exchanges to provide services to retail investors. In December of the same year and in 2024, several spot Bitcoin and Ethereum ETFs were approved for listing on the Hong Kong Stock Exchange. These ETFs are issued by large Chinese-funded institutions such as Huaxia Fund (Hong Kong), E Fund, and Bosera Funds, directly investing in spot Bitcoin and Ether, providing the first batch of regulated cryptocurrency indexed products for Asian investors.

The Hong Kong Monetary Authority and the securities regulatory authorities have repeatedly expressed their support for transforming Hong Kong into a global cryptocurrency hub to attract international capital and related enterprises. It can be said that Hong Kong has become an important testing ground for China’s participation in global crypto finance.

For mainland China, it is entirely possible to leverage the institutional advantages of "one country, two systems" to achieve the compliant introduction of Bitcoin ETFs through Hong Kong as a "springboard."

In early 2025, the People's Bank of China and other departments issued further guidance to expand the Cross-Border Wealth Management Connect to support mainland residents in the Greater Bay Area to purchase "qualified investment products" offered by financial institutions in Hong Kong and Macau. Although the document did not specifically mention Hong Kong's cryptocurrency ETFs, it opens up possibilities for residents of the Greater Bay Area to invest in Hong Kong Bitcoin ETFs.

Under the existing policy framework, it is only a matter of time before mainland investors in the Greater Bay Area are allowed to purchase Hong Kong-listed cryptocurrency ETFs through the Wealth Management Connect, as regulators may wish to "guide funds to Hong Kong" to meet investment demand.

The benefit of this model is that funds are still flowing to regulated products in Hong Kong via official channels in RMB and do not involve direct trading of cryptocurrencies in the mainland, which does not formally violate the current regulations prohibiting virtual currency trading in the mainland. Essentially, this is similar to mechanisms such as Qualified Domestic Institutional Investor (QDII) or Stock Connect, allowing mainland funds to invest in overseas market products legally and compliantly, with the only difference being that the underlying assets are cryptocurrency ETFs. Under the premise of legal and regulatory control, achieving breakthroughs and innovations in policy is entirely feasible.

If mainland China opens up the purchase of Bitcoin ETFs from Hong Kong or overseas, it will create a three-way win situation:

• National Strategic Level: By guiding private capital to allocate Bitcoin, the goal of the country is to achieve a strategic reserve of assets in disguise. The government does not need to directly use fiscal funds to hoard Bitcoin but allows the public to hold it through voluntary investment, which effectively keeps a considerable amount of Bitcoin "in the hands of the Chinese people" and serves as a strategic wealth reserve for potential needs. Additionally, regulatory agencies can require transparency in ETF asset custody information during product design and obtain relevant data when necessary. This enhances the country's understanding and influence over the flow of crypto assets.
• Investor Level: A wide range of mainland investors finally have a legal channel to invest in digital assets such as Bitcoin, meeting their asset allocation and wealth appreciation needs. Through the standardized product of ETFs, investors enjoy professional institutional services and risk isolation, without having to face issues such as private key custody and counterparty default. In the current economic environment, emerging asset classes represented by Bitcoin also provide tools to hedge against the downside risks of traditional markets in investment portfolios. Legal investments also ensure that investors' rights are protected under Chinese law, avoiding disputes related to illegal financial activities.
• Hong Kong and Market Level: A large amount of mainland funds flowing into the Hong Kong market through ETFs helps consolidate Hong Kong's position as a global crypto financial center, enhancing exchange activity and fee income. Hong Kong acts as a "bridgehead" in this process, gaining economic benefits while responding to the central government's policy direction of allowing Hong Kong to "take the lead in trial" for developing virtual assets. More significantly, the influx of mainland funds will improve the liquidity and depth of the Hong Kong crypto market, attracting more international projects and institutions to develop in Hong Kong, forming a positive cycle. This also aligns with Hong Kong's long-term interests in maintaining its status as an international financial center and a hub for innovative technology. It is important to emphasize that this move does not violate existing regulatory red lines in China. Mainland regulatory agencies can still uphold the ban on the issuance, trading, and payment of cryptocurrencies within the country, while managing Bitcoin ETFs as offshore securities investment products. By setting appropriate quota limits, investor qualification thresholds, and information disclosure requirements, the mainland can confidently "borrow a boat to go to sea." In fact, Huang Yiping, a former advisor to the People's Bank of China, pointed out that permanently banning cryptocurrencies could lead to missed opportunities for financial innovation, and China should explore effective regulatory methods. Allowing Bitcoin ETFs is a pragmatic step towards exploring a regulatory sandbox and embracing innovation.

Conclusion

In today's world, a new wave of financial transformation is sweeping across, and the trend of asset digitization led by Bitcoin and blockchain technology is irreversible. China needs to bravely participate in and lead this transformation while ensuring financial security.

We have reason to believe that China can fully seize the historical opportunity of crypto finance while maintaining financial stability.

Accelerating the legalization of Bitcoin ETFs in the mainland and allowing residents to allocate cryptocurrencies through compliant channels is a wise move that aligns with international trends and meets market demand. It enables private capital to take on part of the role of national strategic reserves, provides investors with new tools to combat inflation and diversify risks, and helps Hong Kong consolidate its status as a financial center, achieving a win-win for both the country and the region's economy.

Of course, we should also maintain a prudent attitude and gradually and controllably open up related businesses. For example, starting with a pilot program in the Guangdong-Hong Kong-Macao Greater Bay Area, we can prevent bubbles and speculative risks through investment quota control and investor education. At the same time, we should accelerate the formulation and improvement of laws and regulations regarding crypto assets, providing clear guidelines and bottom-line constraints for the operation of products such as ETFs. We will accumulate experience through exploration and continuously optimize through regulation. We will use innovative tools to serve our own development strategy and seize the initiative in future financial competition. Protecting investors, developing the market, and reserving strategic assets can all be achieved.

We look forward to this process accelerating.