Web3 Lawyer: Why should China speed up the legalization of Bitcoin ETF in the mainland?

introduction

Cryptocurrencies such as Bitcoin are increasingly entering the mainstream financial system around the world. In mainland China, cryptocurrency trading has been strictly restricted or even banned since 2017. However, many regions around the world, 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 and view Bitcoin as part of a strategic asset. In contrast, the current total ban on cryptocurrencies in mainland China may maintain financial order in the short term, but may miss major opportunities in the long run.

This article will argue that China should allow the legalization of Bitcoin ETFs in the mainland as soon as possible, allowing residents to invest and hold cryptocurrencies through compliant financial products. This will not only use private capital to indirectly reserve strategic assets for the country, meet real market needs, and prevent underground gray trading risks, but also leverage 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 public blockchain data and legal disclosures, governments around the world currently hold about 463,000 bitcoins, accounting for about 2.3% of the total supply of bitcoin. This is equivalent to tens of billions of dollars in sovereign wealth, and bitcoin plays an increasingly important role in national asset strategies and sovereign accumulation.

Among them, the United States and China ranked first and second: the US government confiscated nearly 200,000 bitcoins through multiple law enforcement actions (such as the Silk Road case), and in March 2025, the president signed an executive order to include it in the strategic Bitcoin reserve, marking that the United States officially regards Bitcoin as a national strategic asset and will no longer auction it.

The Chinese government seized more than 190,000 Bitcoins when it busted the PlusToken scam in 2019, one of the largest cryptocurrency confiscations in history. Although trading and mining are prohibited in mainland China, a considerable portion of these seized Bitcoins are said to still be controlled by the government, and some analysts believe that China may actually be the world's second largest holder of Bitcoin reserves after the United States.

Some countries, including Bhutan, the United Kingdom, and Ukraine, are also quietly accumulating Bitcoin: Bhutan has obtained more than 12,000 Bitcoins through hydropower mining through sovereign investment institutions, accounting for more than 30% of its GDP. British law enforcement agencies once seized 61,000 Bitcoins at one time and discussed long-term holding...

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

International capital markets are also fully embracing Bitcoin ETFs

Canada was at the forefront as early as 2021, approving the world's first physical Bitcoin ETF (Purpose Bitcoin ETF). The fund was very popular after its listing, and its asset management scale reached approximately 2.6 billion Canadian dollars by the beginning of 2025. Since then, the Canadian market has launched more than ten cryptocurrency ETFs, covering Bitcoin and Ethereum, etc., fully meeting the needs of investors who want to invest in crypto assets through traditional accounts.

In Europe, London asset management company Jacobi listed Europe's first spot Bitcoin ETF on the Euronext Amsterdam in August 2023, marking that major European financial markets have also begun to provide regulated Bitcoin investment channels.

What is even more eye-catching is the transformation of the US market: the US Securities and Exchange Commission (SEC) approved the spot Bitcoin ETF for the first time in January 2024, allowing Bitcoin to officially enter the mainstream US securities market. Subsequently, many companies including asset management giant BlackRock successively issued Bitcoin ETFs. According to statistics, as of November 2024, the net asset size of Bitcoin ETFs in the US market has exceeded US$100 billion, and it is likely to catch up with traditional gold ETFs. Among them, BlackRock's iShares Bitcoin Trust Fund (IBIT) attracted as much as US$74.9 billion in funds in less than a year, becoming one of the most successful new ETFs in history, and generating US$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 once exceeded the $100,000 mark at the end of 2024, and recently hit a record high of $120,000. Obviously, allowing compliant investment channels can release huge market demand and funds, further consolidating Bitcoin's position as the "king of digital assets."

In summary, on the one hand, governments around the world are increasing their Bitcoin reserves and viewing it as a strategic asset; on the other hand, major financial centers are competing to launch products such as Bitcoin ETFs to incorporate cryptocurrencies into the compliant financial system. If China continues to ban crypto investments across the board, it will inevitably fall behind in this emerging strategic track. On the contrary, allowing Bitcoin ETFs in a timely manner will enable Chinese residents and capital markets to keep up with international pace and seize the initiative in national strategy and financial innovation.

Urgent investment needs: high net worth individuals and companies are eager for compliant investments

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

From the historical performance, Bitcoin's long-term return rate has far exceeded that of traditional assets since its birth: its price has risen by more than 26,000% in the past decade, and its average annual return rate is as high as about 230%, which is significantly higher than traditional assets such as stocks and gold in the same period. Although Bitcoin prices fluctuate violently, long-term holders have received huge returns, making it known as "one of the best performing assets in the 21st century."

More importantly, at the macroeconomic level, Bitcoin exhibits anti-inflation properties. Academic research has analyzed the relationship between inflation and asset prices through a vector autoregression model and found that Bitcoin prices will rise significantly after being hit by rising inflation rates, proving that Bitcoin has a safe-haven property against inflation and depreciation of fiat currencies. This is similar to the role of gold as an anti-inflation asset, but Bitcoin also has the characteristics of constant supply and decentralization, and is not affected by a single government's monetary policy. Therefore, many investors view Bitcoin as a "digital gold" or a portfolio diversification tool to hedge against fiat currency depreciation and systemic risks.

China's high-net-worth individuals and companies have also shown great interest in allocating bitcoin. Globally, listed companies and asset management institutions have increased their holdings of bitcoin as part of their asset allocation. For example, MicroStrategy in the United States has purchased more than 150,000 bitcoins as cash reserves, and Tesla also holds a considerable amount of bitcoin. Domestically, despite the policy prohibiting transactions, many wealthy people obtain crypto assets through various channels.

Many large amounts of funds in China currently have "nowhere to go". Against the backdrop of a sluggish mainland stock market and turbulent real estate market, these funds are seeking new investment outlets, and the Bitcoin ETF launched in Hong Kong "opens the door for many investors holding RMB." Especially in 2022-2023, China's three major A-share indices performed poorly and real estate market risks were frequent, and many investors began to pay attention to overseas crypto investment opportunities. This shows that the market has a real demand for non-traditional assets such as Bitcoin.

However, since there is currently no legal and compliant way to invest in Bitcoin in mainland China, these demands are forced to turn to underground or gray channels.

In the past few 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 is still the world's second largest Bitcoin mining country, accounting for about 10% of the global computing power, indicating that there is still a considerable crypto community in the country. Even more surprising is that at least 8% of the users of the collapsed overseas exchange FTX are from mainland China - this means that although policies do not allow it, a considerable number of Chinese residents still conduct crypto transactions on overseas exchanges through VPNs and other means. In addition, there is a secret chain among the people to exchange Bitcoin for stablecoins such as USDT through the over-the-counter market. These underground behaviors contain huge risks: investors are easily involved in fraud or exchange explosions (such as the FTX incident), and the transfer of funds abroad also affects foreign exchange supervision and financial security.

Rather than watching the huge investment demand breed risks underground, it is better to guide it into a legal and compliant framework. Providing a product such as a Bitcoin ETF regulated by the state is a win-win move to meet demand and prevent risks.

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

On the other hand, regulatory authorities can monitor the flow of funds and product operations in real time, prevent illegal activities such as money laundering, and make requirements on the suitability of investors. Through compliance channels, the government can also levy taxes on related investment income and realize tax revenue.

In short, the legalization of Bitcoin ETFs can meet market investment needs while bringing crypto assets under public supervision and reducing the risk of the financial system being impacted by underground transactions.

Seizing opportunities in Hong Kong: achieving a win-win situation for all parties under a compliance framework

The introduction of Bitcoin ETF in mainland China can actually make full use of Hong Kong's special platform, so as to avoid violating the current regulatory framework and promote win-win results for the mainland, Hong Kong and investors.

As an international financial center, Hong Kong has adopted an open attitude in the field of virtual assets in recent years: Hong Kong has implemented a new cryptocurrency regulatory system since 2023, allowing qualified exchanges to provide services to retail investors, and approved a number of spot Bitcoin and Ethereum ETFs to be listed on the Hong Kong Stock Exchange in December of that year and 2024. These ETFs are issued by large Chinese-backed institutions such as China Asset Management (Hong Kong), E Fund, and Bosera Fund, and directly invest in Bitcoin and Ethereum spot, providing Asian investors with the first batch of regulated cryptocurrency index products.

The Hong Kong Monetary Authority and securities regulators have also repeatedly expressed their support for Hong Kong to become a global cryptocurrency hub to attract international funds and related companies to settle in. 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 can fully utilize the institutional advantages of "one country, two systems" and use Hong Kong as a "springboard" to achieve the compliant introduction of Bitcoin ETFs.

At the beginning of 2025, the People's Bank of China and other departments issued guidance on further expanding cross-border wealth management, supporting mainland residents in the Greater Bay Area to purchase "qualified investment products" provided by financial institutions in Hong Kong and Macau. Although the document did not mention Hong Kong's crypto asset ETFs by name, it opened up imagination for residents in 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. Regulators may hope to "direct capital flows to Hong Kong" to meet investment needs.

The advantage of this model is that funds still flow to regulated products in Hong Kong through official channels in RMB, and do not involve direct trading of cryptocurrencies in the mainland. In form, it does not violate the current mainland regulations prohibiting virtual currency transactions. In essence, this is similar to mechanisms such as Qualified Domestic Institutional Investors (QDII) or the Shanghai-Hong Kong Stock Connect, which legally and compliantly invest mainland funds in overseas market products, except that the target is replaced by a crypto asset ETF. Under the premise of legal and regulatory control, it is completely feasible to achieve policy breakthroughs and innovations.

If mainland China opens up to purchase Bitcoin ETFs in Hong Kong or overseas, it will create a win-win situation for all three parties:

• National strategic level: By guiding private funds to allocate Bitcoin, the country can achieve the goal of reserving strategic assets in disguise. The government does not need to directly use fiscal funds to hoard Bitcoin, but allows the public to hold it in voluntary investment, which actually allows a considerable amount of Bitcoin to "remain in the hands of the Chinese themselves" and is also a strategic wealth reserve when it is potentially needed. In addition, regulators can require transparency in ETF asset custody information in product design and master relevant data when necessary. This enhances the country's understanding and influence on the flow of encrypted assets.
• Investor level: Mainland investors finally have legal channels to invest in digital assets such as Bitcoin to meet their asset allocation and wealth appreciation needs. Through the standardized product of ETF, investors enjoy professional institutional services and risk isolation, without having to face problems such as private key custody and counterparty default. In the current economic environment, emerging asset classes represented by Bitcoin also provide investment portfolios with tools to hedge against the downside risks of traditional markets. Legal investment also protects investors' rights and interests under Chinese law, avoiding disputes involving illegal financial activities.
• Hong Kong and market level: A large amount of mainland funds flowed into the Hong Kong market through ETFs, which helped consolidate Hong Kong's position as a global crypto financial center and increased the activity of exchanges and commission income. Hong Kong acted as a "bridgehead" in this process, not only gaining economic benefits, but also responding to the central government's policy direction of "first-mover advantage" in the development of virtual assets in Hong Kong. More importantly, the entry of mainland funds will increase the liquidity and depth of Hong Kong's crypto market, attract more international projects and institutions to develop in Hong Kong, and form a positive cycle. This is also in line with Hong Kong's long-term interests in maintaining an international financial center and an innovative technology highland. It should be emphasized that this move does not violate China's existing regulatory red lines. Mainland regulators can still insist on the ban on the issuance, trading, and payment of cryptocurrencies in the country, and manage Bitcoin ETFs as an overseas securities investment product. By formulating appropriate quota limits, investor qualification thresholds, and information disclosure requirements, the mainland is fully qualified to "borrow a boat to go to sea" with confidence. In fact, Huang Yiping, a former adviser to the People's Bank of China, also pointed out that a permanent ban on cryptocurrencies may lead to the loss of many financial innovation opportunities, and China should study and find effective regulatory methods. Allowing Bitcoin ETFs is a pragmatic step to explore regulatory sandboxes and embrace innovation.

Conclusion

In today's world, a new wave of financial reform is sweeping across the world, 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.

When major economies around the world have opened the door to crypto investment, we cannot stay out of it. Bitcoin ETFs should no longer be seen as a flood or a beast, but as "water" that can be controlled. Just as water can carry a boat or overturn it, the key lies in guidance and governance.

We have reason to believe that China can seize the historical opportunities of crypto finance while protecting financial stability.

Accelerating the legalization of Bitcoin ETFs in the Mainland and allowing residents to allocate cryptocurrencies through compliant channels is a wise move to conform to international trends and meet market demand. It can not only allow private capital to assume the role of part of the country's strategic reserves, but also provide investors with new tools to combat inflation and diversify risks. It can also help Hong Kong consolidate its position as a financial center and achieve a win-win situation for the national and regional economies.

Of course, we should also maintain a prudent attitude and open up related businesses gradually and in a controlled manner. For example, we should first pilot in the Guangdong-Hong Kong-Macao Greater Bay Area, and prevent bubbles and speculative risks through investment quota control and investor education. At the same time, we should speed up the formulation and improvement of laws and regulations for crypto assets, and provide clear guidance and bottom lines for the operation of products such as ETFs. We should accumulate experience in exploration and continuously optimize in supervision. We should use innovative tools to serve our own development strategies and seize the initiative in future financial competition. We can protect investors, develop markets, and reserve strategic assets at the same time.

We hope this process can be accelerated.

References:

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Sangyup Choi & Junhyeok Shin.Bitcoin: An inflation hedge but not a safe haven. Finance Research Letters, 46 (2022)

Meagen Seatter.13 Canadian Crypto ETFs in 2025. Investing News Network. Apr 24, 2025

Albert Fox. Tokenizing the Global Periphery: How Blockchain and US Policy Shifts Are Redefining Frontier Markets. AInvest. Jul 10, 2025

Helen Partz.Bank of China ex-advisor calls Beijing to reconsider crypto ban. Cointelegraph. Feb 02, 2023