Mainland China’s Pathway for Traders to Access Bitcoin
China supports blockchain while prohibiting crypto trading, with evolving regulations possibly offering access to Bitcoin via Hong Kong’s markets. The Qualified Domestic Institutional Investor program could create a pathway for investments, albeit under stringent capital controls. The Chinese regulatory stance may be shifting, allowing for more dialogue around Bitcoin and digital assets.
The relationship between blockchain technology and cryptocurrencies in China is complex. The Chinese government supports blockchain development while banning cryptocurrency trading. Nonetheless, with Hong Kong establishing regulated crypto markets, insiders suggest a loophole could be forming. If mainland investors can buy U.S. stocks via the Qualified Domestic Institutional Investor (QDII) program, they might soon access Bitcoin under similar constraints.
Yifan He, CEO of Red Date Technology, noted during Consensus Hong Kong that control is essential for this model. China employs two primary mechanisms for mainland investors to access foreign stocks: the QDII program for U.S. ETFs and the Shanghai-Hong Kong Connect and Shenzhen-Hong Kong Connect for Hong Kong stocks, all transacted in RMB. “The key [with these systems] is that capital never flows freely out of China,” He stated, implying that a similar framework could apply to cryptocurrencies.
The primary barrier in China lies not with cryptocurrencies themselves but with capital controls designed to prevent currency instability and capital outflow. These regulations are why Hong Kong’s crypto ETFs have faced restrictions on the mainland. He raised a critical question: “What’s the difference between a Hong Kong-regulated stock and a Hong Kong-regulated crypto asset?” If a system enables trade in RMB without moving funds outside China, it becomes a regulated investment product.
Chinese investors would not have direct ownership of their crypto; instead, purchases would be managed by licensed intermediaries or securities firms, acting as custodians. “They buy crypto directly, but it’s not like they’re holding it themselves,” He explained. This approach is akin to how mainland investors trade U.S. ETFs through the QDII framework, providing exposure to the crypto market without necessitating cross-border monetary transactions.
As China hosts 200 million retail investors seeking stimulus, regulated access to cryptocurrency via Hong Kong’s sandbox could present a strategic compromise for the government.
Despite the nation’s historically cautious stance on cryptocurrencies, China has fervently championed blockchain technology. He utilized an analogy to clarify this dichotomy: “We don’t allow guns in China, but we can still make steel.” He suggested that while blockchain applications are encouraged, those that infringe upon regulations face stricter scrutiny.
However, discussions with financial regulators indicate a possible shift in this dynamic. “I see some signal from financial regulators,” said He, noting that they are starting to engage with Bitcoin and digital assets more robustly. Potential wider adoption appears more plausible now than it did previously. “Now, I’d say there’s more than a 50% chance in three years,” He concluded.
In summary, China maintains a stringent regulatory environment around cryptocurrencies while fostering blockchain technology. With potential access to Bitcoin for mainland traders through Hong Kong’s regulated markets, a strategic framework may be emerging. Capital controls remain crucial in this equation, allowing the government to mitigate the risks of capital outflow. Regulated investments in cryptocurrencies under custodian arrangements may pave the way for broader acceptance in the future.
Original Source: www.tradingview.com
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