A triple win for the state, investors, and the Hong Kong market.

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 jurisdictions—including the United States, Canada, Europe, and Hong Kong, China—are actively launching compliant investment products such as Bitcoin exchange-traded funds (ETFs) to meet investor demand and treat Bitcoin as part of theirstrategic assets. By comparison, while mainland China’s current comprehensive ban on cryptocurrencies may have maintained financial order in the short term, it risks missing significant opportunities in the long run.

This article argues that China should promptly legalize Bitcoin ETFs in the mainland, allowing residents to invest in and hold cryptocurrencies through compliant financial products. This approach would not only leverage private capital to indirectly build a national strategic asset reserve, satisfy genuine market demand, and mitigate the risks of underground gray-market transactions, but also leverage Hong Kong’s regulatory advantages to achieve atriple win for the state, investors, and the Hong Kong market.

 

International Trends: Bitcoin as a Strategic Reserve

According to public blockchain data and legal disclosures, governments worldwide currently hold approximately 463,000 Bitcoins, representing about 2.3% of Bitcoin’s total supply. This equates to tens of billions of U.S. dollars in sovereign wealth, with Bitcoin playing an increasingly important role in national asset strategy and sovereign accumulation.

The United States and China rank first and second, respectively. The U.S. 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 incorporating them into theStrategic Bitcoin Reserve, marking the formal recognition of Bitcoin as a U.S. national strategic asset and ending its auction and disposal.

In 2019, when the Chinese government dismantled the PlusToken fraud scheme, it seized more than 190,000 bitcoins, marking one of the largest cryptocurrency confiscations in history. Although trading and mining are prohibited in mainland China, a significant portion of these seized bitcoins is reportedly still under government control. Some analysts believe that China may effectively be the world’s second-largest holder of bitcoin reserves, after the United States.

Several other countries, including Bhutan, the United Kingdom, and Ukraine, are also quietly accumulating bitcoin: Bhutan has acquired over 12,000 bitcoins through hydroelectric-powered mining conducted by its sovereign investment vehicle, representing more than 30% of its GDP; UK law enforcement agencies once seized 61,000 bitcoins in a single operation and have discussed holding them long-term…

These developments indicate that bitcoin is gradually transitioning from a speculative asset held by private individuals to what governments around the world view as “digital gold” and a strategic resource.

 

International capital markets are also fully embracing bitcoin exchange-traded funds (ETFs).

Canada was an early leader, approving the world’s first physical bitcoin ETF (the Purpose Bitcoin ETF) in 2021. The fund gained widespread popularity after its launch, with assets under management reaching approximately CAD 2.6 billion by early 2025. Since then, the Canadian market has introduced more than ten crypto asset ETFs, covering bitcoin, ethereum, and others, thereby fully meeting investors’ demand to invest in crypto assets through traditional accounts.

In Europe, London-based asset manager Jacobi listed Europe’s first spot bitcoin ETF on the Euronext Amsterdam exchange in August 2023, signaling that major European financial markets have also begun to offer regulated channels for bitcoin investment.

Even more notable is the shift in the U.S. market: In January 2024, the U.S. Securities and Exchange Commission (SEC) approved the first spot bitcoin ETFs, formally bringing bitcoin into the mainstream U.S. securities market. Subsequently, multiple firms, including asset-management giant BlackRock, launched bitcoin ETFs. According to statistics, by November 2024, the net asset value of bitcoin ETFs in the U.S. market had exceeded USD 100 billion, showing strong momentum to catch up with traditional gold ETFs. Among them, BlackRock’s iShares Bitcoin Trust (IBIT) attracted as much as USD 74.9 billion in inflows in less than a year, becoming one of the most successful new ETFs in history and generating USD 187 million in first-year fee revenue for BlackRock.

Bitcoin’s price has risen accordingly—after the U.S. policy shift toward a more favorable stance, bitcoin’s price briefly surpassed the USD 100,000 mark at the end of 2024 and recently hit a new all-time high of USD 120,000. Clearly,allowing compliant investment channels can unlock substantial market demand and capital flows, further consolidating bitcoin’s position as the “king of digital assets.”

In summary, on a global scale,on the one hand,Governments around the world are increasing their Bitcoin reserves, treating it as a strategic asset;on the other hand,major financial centers are racing to launch products such as Bitcoin ETFs, integrating crypto assets into the compliant financial system.If China continues to impose a blanket ban on crypto asset investment, it will inevitably fall behind in this emerging strategic sector.Conversely, promptly permitting Bitcoin ETFs will enable 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 Enterprises Seek Compliant Investment Opportunities

As Bitcoin gains recognition from an increasing number of institutions and investors, itsinvestment value and risk-resilience characteristicshave become prominent, sparking strong interest among high-net-worth individuals and enterprises.

Historically, Bitcoin has delivered long-term returns far exceeding those of traditional assets since its inception: over the past decade, its price has cumulatively increased by more than26,000%, with an average annual return of approximately 230%, significantly higher than that of 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 reputation as “one of the best-performing assets of the 21st century.”

More importantly, at the macroeconomic level, Bitcoin demonstratesInflation-hedgingproperties. Academic research employing vector autoregression models to analyze the relationship between inflation and asset prices has found that Bitcoin prices rise significantly following shocks from rising inflation rates, demonstrating Bitcoin’s safe-haven characteristics against fiat currency depreciation due to inflation. This resembles gold’s role as an inflation-hedging asset, but Bitcoin also features a fixed supply and decentralization, remaining unaffected by any single government’s monetary policy. Consequently, many investors regard Bitcoin as “digital gold” or a portfolio diversification tool to hedge against fiat currency depreciation and systemic risks.

High-net-worth individuals and enterprises in China have likewise shown strong interest in allocating capital to Bitcoin. Globally, listed companies and asset management institutions have increased their Bitcoin holdings as part of asset allocation strategies; for example, MicroStrategy in the United States has cumulatively purchased more than 150,000 bitcoins as cash reserves, and Tesla also holds a substantial amount of Bitcoin. Domestically, despite regulatory prohibitions on trading, many affluent individuals acquire crypto assets through various channels.

A significant amount of large-scale capital in China currently has “nowhere to go”. Against the backdrop of sluggish mainland stock markets and turmoil in the real estate sector, such capital is seeking new investment outlets, and the Bitcoin ETFs launched in Hong Kong have “opened the door for numerous RMB-denominated investors.” In particular, during 2022–2023, when China’s A-share major indices performed poorly and risks in the real estate market frequently materialized, many investors began to focus on overseas crypto investment opportunities. This indicates genuine market demand for allocating capital to non-traditional assets such as Bitcoin.

However, because there are currently no legal and compliant avenues in mainland China to invest in Bitcoin, such demand has been forced intounderground or gray-market channels.

In recent years, a large number of Chinese investors have purchased cryptocurrencies through offshore platforms or over-the-counter transactions. Data show that, even under strict prohibitions, mainland China remains the world’s second-largest Bitcoin mining country, accounting for approximately 10% of global hash rate, indicating a considerable domestic crypto community. More strikingly, among the users of the collapsed overseas exchange FTX, at least 8% were from mainland China—meaning that, despite regulatory prohibitions, a significant number of Chinese residents conducted crypto trading on overseas exchanges via VPNs and other means. In addition, there exist clandestine chains in the informal market for exchanging stablecoins such as USDT for Bitcoin. These underground activities entail substantial risks: investors are prone to becoming involved in fraud or exchange failures (such as the FTX incident), and the outbound transfer of funds affects foreign-exchange regulation and financial security.

Rather than allowing vast investment demand to foster risks in the underground economy, it is preferable to channel it into a legal and compliant framework. Providing state-regulated products such as a Bitcoin ETF is a win-win measure that both meets demand and mitigates risks.

On the one hand, investors can conveniently gain Bitcoin exposure by purchasing ETF products through domestic securities firms or banks, without worrying about platform absconding or asset custody risks. The underlying assets of the ETF are custodied by licensed financial institutions, and trading is transparent, thereby reducing the technical barriers and security hazards associated with directly holding cryptocurrencies.

On the other hand, regulators can monitor fund flows and product operations in real time to prevent illicit activities such as money laundering, and impose investor suitability requirements. Through compliant channels, the government can also levy taxes on related investment returns, thereby generating tax revenue.

In short,The legalization of Bitcoin ETFs can meet market investment demand while bringing crypto assets under transparent regulatory oversight, thereby reducing the risk of underground transactions impacting the financial system.

 

Seizing Opportunities in Hong Kong: Achieving a Win-Win-Win Outcome for All Three Parties Within a Compliance Framework

In introducing Bitcoin ETFs to mainland China, full advantage can be taken ofHong Kongas a special platform, thereby achieving a win-win outcome for mainland China, Hong Kong, and investors without violating the current regulatory framework.

As an international financial center, Hong Kong has adopted an open stance toward virtual assets in recent years. Since 2023, Hong Kong has implemented a new cryptocurrency regulatory regime that permits qualified exchanges to provide services to retail investors. In December of that year and subsequently in 2024, multiple spot Bitcoin and Ethereum ETFs were approved for listing on the Hong Kong Stock Exchange. These ETFs, issued by large institutions with Chinese capital backgrounds such as China Asset Management (Hong Kong), E Fund, and Bosera Funds, invest directly in spot Bitcoin and Ether, providing Asian investors with the first batch of regulated cryptocurrency index products.

The Hong Kong Monetary Authority and securities regulators have repeatedly expressed support for establishing Hong Kong as a global cryptocurrency hub, attracting 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 feasible 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 guidance on further expanding theCross-Boundary Wealth Management Connectscheme, supporting residents in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) mainland cities to purchase “eligible investment products” offered by financial institutions in Hong Kong and Macao. Although the document did not explicitly mention Hong Kong’s crypto asset ETFs, this opens up possibilities for GBA residents to invest in Hong Kong-listed Bitcoin ETFs.

Under the existing policy framework, allowing mainland GBA investors to purchase Hong Kong-listed cryptocurrency ETFs through the Wealth Management Connect is merelyFrom a timing perspective, regulators may seek to "channel capital flows into Hong Kong" to meet investment demand.

The advantage of this model is that funds continue to flow into regulated products in Hong Kong in renminbi through official channels, without involving direct trading of crypto assets within the mainland. Formally, this does not violate the mainland's current prohibitions on virtual asset transactions. In substance, it resembles mechanisms such as the Qualified Domestic Institutional Investor (QDII) program or the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connects, which allow mainland capital to invest legally and in compliance with regulations in overseas market products, except that the underlying assets are replaced by crypto asset ETFs.Under the premise that legal and regulatory risks are controllable, achieving policy breakthroughs and innovation is entirely feasible.

If mainland China were to permit the purchase of Bitcoin ETFs listed in Hong Kong or other overseas jurisdictions, it would createa triple-winscenario:

  • At the level of national strategy:By channeling private capital into Bitcoin allocations, the state can achieve the de facto objective of strategically reserving assets. The government would not need to directly deploy fiscal funds to accumulate Bitcoin; instead, it would allow individuals to hold Bitcoin through voluntary investment. This effectively ensures that a significant quantity of Bitcoin remains "in the hands of Chinese citizens," serving as a strategic wealth reserve should the need arise. Furthermore, regulators could mandate transparency in ETF asset custody arrangements within product designs, thereby enabling access to relevant data when necessary. This enhances the state's understanding of and influence over crypto asset flows.
  • At the investor level:Mainland investors would finally have a lawful channel to invest in digital assets such as Bitcoin, meeting their needs for asset allocation and wealth appreciation. Through standardized ETF products, investors benefit from professional institutional services and risk segregation, without having to address challenges such as private key custody or counterparty default. In the current economic environment, emerging asset classes represented by Bitcoin also provide tools for hedging against downside risks in traditional markets within investment portfolios. Lawful investment further ensures that investors' rights and interests are protected under Chinese law, avoiding disputes arising from illicit financial activities.
  • At the level of Hong Kong and the market:A substantial inflow of mainland capital into the Hong Kong market via ETFs would help consolidate Hong Kong's position asstatus as a global crypto finance hub, thereby enhancing exchange activity and fee revenue. In this process, Hong Kong serves as a "bridgehead," securing economic benefits while aligning with the central government’s policy direction for Hong Kong to "pilot first" in the development of virtual assets. More significantly, the inflow of mainland capital will enhance the liquidity and depth of Hong Kong’s crypto market, attracting more international projects and institutions to develop in Hong Kong and creating a positive feedback loop. This also aligns with Hong Kong’s long-term interests in maintaining its status as an international financial center and a highland for innovative technology. It is important to emphasize that this move does not violate China’s existing regulatory red lines. Mainland regulatory authorities can continue to enforce the ban on the issuance, trading, and payment of cryptocurrencies within the mainland, while managing Bitcoin ETFs as overseas securities investment products. By establishing appropriate quota limits, investor eligibility thresholds, and information disclosure requirements, the mainland is fully positioned to confidently "borrow a ship to go to sea." Indeed, Huang Yiping, former advisor to the People’s Bank of China, has pointed out that a permanent ban on cryptocurrencies could result in missing many opportunities for financial innovation, and that China should study and identify effective regulatory approaches. Allowing Bitcoin ETFs represents a pragmatic step toward exploring regulatory sandboxes and embracing innovation.Conclusion

 

In today’s world, a new wave of financial transformation is sweeping across the globe, and the trend toward asset digitization led by Bitcoin and blockchain technology is irreversible.

China needs to courageously participate in and lead this transformation, while ensuring financial security.As major economies around the world have opened the door to crypto investments, we cannot remain on the sidelines. Bitcoin ETFs should no longer be viewed as a catastrophic threat, but rather as "water" that can be harnessed. Just as water can either carry or capsize a boat, the key lies in guidance and governance.

We have reason to believe that China can fully seize the historical opportunities in crypto finance while safeguarding financial stability.

Accelerating the legalization of Bitcoin ETFs in the mainland, allowing residents to allocate crypto assets through compliance channels, is a wise move that aligns with international trends and meets market demand. It enables private capital to assume part of the role of national strategic reserves, provides investors with new tools to hedge against inflation and diversify risks, and helps Hong Kong consolidate its position as a financial center, achieving a win-win outcome for both the nation and the region.

Of course, we should also maintain a prudent attitude and gradually open up related businesses in a controlled manner. For example, pilots could be launched first in the Guangdong-Hong Kong-Macao Greater Bay Area, preventing bubble and speculation risks through investment quota controls and investor education. At the same time, we should accelerate the formulation and improvement of laws and regulations targeting crypto assets, providing clear guidelines and red lines for the operation of products such as ETFs. We should accumulate experience through exploration and continuously optimize through regulation. By leveraging innovative tools to serve our own development strategies, we can seize the initiative in future financial competition. It is possible to simultaneously protect investors, develop the market, and reserve strategic assets.

We look forward to the accelerated arrival of this process.

References:

 

References:

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