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, several 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 have maintained financial order in the short term, but may miss significant opportunities in the long run.

This article argues that China should hasten the legalization of Bitcoin ETFs in the mainland, allowing residents to invest in and hold cryptocurrencies through compliant financial products. This would not only leverage private capital to indirectly reserve strategic assets for the country, meet genuine market demand, and mitigate the risks of underground gray market transactions, but also achieve a win-win-win situation for the country, investors, and the Hong Kong market by utilizing Hong Kong's regulatory advantages.

Global 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 seized nearly 200,000 bitcoins through multiple law enforcement actions (such as the Silk Road case), and in March 2025, an executive order signed by the president incorporated them into the strategic bitcoin reserves, marking the official recognition of bitcoin as a national strategic asset rather than auctioning it off.

The Chinese government seized over 190,000 Bitcoins while dismantling the PlusToken scam in 2019, making it one of the largest cryptocurrency confiscation cases in history. Although trading and mining are banned in mainland China, it is said that a significant portion of these confiscated Bitcoins is still under government control, with some analysts suggesting that China may actually be the second largest holder of Bitcoin reserves in the world, after the United States.

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

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 governments around the world.

The international capital markets are also fully embracing Bitcoin ETFs

Canada took the lead as early as 2021 by 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, Ethereum, and others, fully meeting investors' demand to invest in crypto assets through traditional accounts.

In Europe, London-based asset management firm Jacobi listed the continent's first spot Bitcoin ETF on the Amsterdam-based Pan-European Stock Exchange in August 2023, marking the beginning of regulated Bitcoin investment avenues in major European financial markets.

What is even more eye-catching is the shift in the U.S. market: The U.S. Securities and Exchange Commission (SEC) approved the first spot Bitcoin ETF in January 2024, officially bringing Bitcoin into the mainstream securities market in the U.S. Subsequently, several companies, including asset management giant BlackRock, launched Bitcoin ETFs. According to statistics, as of November 2024, the net asset size of Bitcoin ETFs in the U.S. market has surpassed $100 billion, significantly catching 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, making it one of the most successful new ETFs in history, generating $187 million in first-year fee income for BlackRock.

The price of Bitcoin has also risen accordingly - after the US policy turned favorable, the price of Bitcoin briefly surpassed the $100,000 mark by the end of 2024, and recently reached a historical high of $120,000. Clearly, allowing compliant investment channels can unleash significant market demand and capital, further consolidating Bitcoin's position as the "king of digital assets."

In summary, globally, on one hand, governments of various countries 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 implement a blanket ban on cryptocurrency investments, it will inevitably fall behind in this emerging strategic race. Conversely, timely allowing Bitcoin ETFs will enable Chinese residents and capital markets to keep pace with international developments, seizing opportunities in national strategy and financial innovation.

Urgent Investment Demand: High Net Worth Individuals and Enterprises Yearn for Compliant Investments

As Bitcoin is increasingly recognized by more institutions and investors, its investment value and risk resistance characteristics are highlighted, arousing the strong interest of high-net-worth individuals and enterprises.

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

More importantly, at the macroeconomic level, Bitcoin exhibits anti-inflation properties. Academic research using vector autoregression models has analyzed the relationship between inflation and asset prices, finding that Bitcoin's price significantly rises following an increase in the inflation rate, proving that Bitcoin has a hedging characteristic against the depreciation 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 less influenced by the monetary policies of any single government. Therefore, many investors view Bitcoin as "digital gold" or a portfolio diversification tool to hedge against the depreciation of fiat currency and systemic risks.

High-net-worth individuals and companies in China are also showing strong interest in allocating Bitcoin. Globally, public companies and asset management institutions are increasingly adding Bitcoin as part of their asset allocation. For example, the American company MicroStrategy has cumulatively purchased over 150,000 Bitcoins as cash reserves, and Tesla 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 occurred, leading many investors to pay attention to overseas crypto investment opportunities. This indicates that there is a real demand for allocation in non-traditional assets such as Bitcoin.

However, due to the lack of legal and compliant channels to invest in Bitcoin in mainland China at present, this demand is forced to shift to 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 prohibitions, 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% came from mainland China—this means that despite policy restrictions, a significant number of Chinese residents are still engaging in crypto trading on overseas exchanges using VPNs and other means. Additionally, there exists a clandestine chain for exchanging Bitcoin through over-the-counter markets using stablecoins like USDT. These underground activities carry enormous risks: investors are prone to falling victim to fraud or exchange collapses (such as the FTX incident), and the transfer of funds abroad also affects foreign exchange regulation and financial security.

Rather than watching the huge investment demand breed risks underground, it is better to guide it into a legitimate and compliant framework. Providing products such as a state-regulated Bitcoin ETF is a win-win solution to meet demand and mitigate risks.

On one hand, investors can easily purchase ETF products to gain exposure to Bitcoin through domestic brokers or banks, without having to worry about the risks of trading platforms running away or asset custody. The underlying assets of the ETF are held by licensed financial institutions, ensuring transparent trading and reducing the technical barriers and security risks associated with directly holding cryptocurrencies.

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

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

Seizing Opportunities in Hong Kong: Achieving a Win-Win-Win Under a Compliance Framework

The introduction of Bitcoin ETFs in mainland China can actually take full advantage of Hong Kong as a special platform, thus achieving a win-win situation for the mainland, Hong Kong, and investors without violating the current regulatory framework.

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

The Hong Kong Monetary Authority and the securities regulatory body have repeatedly expressed support for making Hong Kong 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 guidelines to expand the Cross-Border Wealth Management Connect , supporting mainland residents in the Greater Bay Area to purchase "qualified investment products" provided by financial institutions in Hong Kong and Macao. Although the document did not specifically mention Hong Kong's crypto asset 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 'channel funds into Hong Kong' to meet investment demand.

The benefit of this model is that funds still flow to regulated products in Hong Kong through official channels in RMB, without involving direct trading of cryptocurrencies in the mainland, which does not formally violate the existing regulations prohibiting virtual currency trading in the mainland. Essentially, this is similar to mechanisms like Qualified Domestic Institutional Investor (QDII) or Shanghai-Shenzhen-Hong Kong Stock Connect, allowing mainland funds to invest in overseas market products legally and compliantly, only that the underlying assets have changed to crypto asset ETFs. Achieving breakthroughs and innovations in policies is completely feasible under the premise of legal and regulatory control.

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

• National Strategic Level: By guiding private capital to allocate Bitcoin, the purpose of achieving a de facto national strategic asset reserve is realized. 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 significant amount of Bitcoin "in the hands of the Chinese people" and serves as a strategic wealth reserve when needed. In addition, regulatory agencies can require transparency in ETF asset custody information during product design, and acquire relevant data when necessary. This enhances the country's understanding and influence over the flow of crypto assets.
• Investor Level: A large number of mainland investors finally have legal channels to invest in Bitcoin and other digital assets, satisfying their asset allocation and wealth appreciation needs. Through standardized products like ETFs, investors enjoy professional institutional services and risk isolation, without facing challenges such as private key management and counterparty defaults. In the current economic environment, emerging asset classes represented by Bitcoin also provide tools for hedging against the downside risks of traditional markets in investment portfolios. Legal investments also ensure that investors' rights are protected by Chinese law, avoiding disputes related to illegal financial activities.
• Hong Kong and Market Level: A large amount of mainland capital flows into the Hong Kong market through ETFs, which 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 "explore and experiment" in the development of virtual assets. More significantly, the entry of mainland capital will increase the liquidity and depth of the Hong Kong crypto market, attracting more international projects and institutions to develop in Hong Kong, creating 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 authorities can still insist on the prohibition of cryptocurrency issuance, trading, and payment within the mainland, while managing Bitcoin ETFs as a type of offshore securities investment product. 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, former advisor to the People's Bank of China Huang Yiping also pointed out that permanently banning cryptocurrencies may lead to missing many financial innovation opportunities, and China should explore effective regulatory methods. Allowing Bitcoin ETFs is a practical step in exploring regulatory sandboxes and embracing innovation.

Conclusion

In today's world, a new wave of financial reform is sweeping in, 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 protecting financial stability.

Accelerating the legalization of Bitcoin ETFs in the mainland, allowing residents to allocate cryptocurrencies through compliant channels, is a wise move in line with international trends and market demands. 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 position as a financial center, achieving a win-win for both the nation and the regional economy.

Of course, we should also maintain a prudent attitude and gradually and controllably open up related businesses. For example, we can pilot in the Guangdong-Hong Kong-Macao Greater Bay Area, using investment quota control and investor education to prevent bubbles and speculative risks. At the same time, accelerate the formulation and improvement of laws and regulations targeting crypto assets to provide clear guidelines and bottom lines for the operation of products such as ETFs. Accumulate experience through exploration and continuously optimize through regulation. Utilize 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.