China To Open Up Bitcoin ETF Trading?

We could see China approve trading of Bitcoin and Ethereum ETF to its citizens.

Hey Thinkers 💡

China to Approve Bitcoin & Ethereum ETF Trading Soon?

I have a prediction! In an unexpected but potentially transformative move, China could approve Bitcoin and Ethereum ETF trading within the next six months for citizens of mainland China. Here’s why this might be on the horizon.

Background: Crypto Ban and Hong Kong's Role

Cryptocurrency has long been banned in mainland China, with strict government regulations prohibiting both crypto trading and mining activities. However, Hong Kong, under China's control, has taken a different path, positioning itself as a global digital asset hub. In April 2024, Hong Kong launched its Bitcoin and Ethereum ETFs with government-imposed restrictions on how retail investors could participate. These restrictions were largely aimed at protecting investors by limiting access to foreign spot ETFs and reiterating concerns about price manipulation—concerns that mirror those of the U.S. Securities and Exchange Commission (SEC).

Hong Kong allows retail investors to buy ETFs based on CME derivatives, but access to spot crypto ETFs and ETPs is limited to professional investors. This cautious approach aligns with regulators' preference for ETFs traded on regulated derivative exchanges.

Rising Crypto Trading in Mainland China

Despite these restrictions, cryptocurrency trading in China is on the rise. A September 2024 report from blockchain analytics firm Chainalysis highlighted that trading volumes in China’s "over-the-counter" (OTC) markets—where crypto buyers and sellers connect directly through concealed networks—had tripled to $23.7 billion in the second quarter of 2024 compared to the same period in 2021.

This surge occurred after China shut down mainstream crypto exchanges in 2021, prompting users to explore alternative avenues such as OTC platforms and peer-to-peer trading networks.

China's Web3 Plans: A Glimpse of Crypto Openness?

In 2023, Beijing's municipal government unveiled a white paper outlining its vision for the Web3 industry, marking a shift toward greater openness in certain digital spaces. The "Web3 Innovation and Development White Paper" presented plans to establish Beijing as a leading innovation hub for the digital economy, with an annual funding of at least 100 million yuan ($14 million) allocated until 2025. This development demonstrates China’s growing interest in blockchain and Web3 technologies, hinting at a possible shift in crypto policy.

The white paper recognizes Web3 as an "inevitable trend" for the future of the internet, signaling China's long-term interest in fostering digital advancements.

Pressure from Global Competition: A Catalyst for Change

Former Chinese finance minister Lou Jiwei recently urged China to pay closer attention to the evolving cryptocurrency landscape. Speaking at the 2024 Tsinghua Wudaokou Chief Economists Forum, Lou highlighted the risks that crypto poses to financial stability, including volatility and potential money laundering. However, he also pointed to the U.S. SEC's approval of spot Bitcoin ETFs as an indication that China needs to consider allowing crypto ETFs to stay competitive in global markets.

Moreover, China's tight control over foreign capital outflows has made cryptocurrency an appealing alternative for citizens seeking to move assets abroad. By approving crypto ETFs, China could maintain tighter control over the capital invested in these assets while simultaneously allowing citizens to participate in the growing crypto market in a regulated manner.

Conclusion: A Shift in Policy on the Horizon?

Despite a long-standing ban, China may soon allow ETF trading for Bitcoin and Ethereum. The growing popularity of crypto, the development of the Web3 industry, and pressure from global competition could push China to adopt a more controlled approach, potentially offering citizens regulated access to digital assets while keeping capital within its borders. This shift could mark a significant turning point for crypto regulation not just in China, but globally.

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