According to Wu Blockchain's report, recently some users in mainland China have received advertisements for cryptocurrency funds on the Alipay fund homepage, with the content showing "global investment, cryptocurrency soaring, 10 RMB to start, get on board immediately". After verification, the fund is Hwabao Overseas Technology C (QDII-FOF-LOF), with a limited quota mechanism, and each person is limited to a daily purchase of 1,000 RMB.
Given Alipay's important position in China's internet industry, many friends in the circle have forwarded the news, speculating whether this is a harbinger of the mainland relaxing its policy restrictions on cryptocurrencies. Previously, Liu Honglin and Bai Qin of Mansun Law Firm wrote an article analyzing 《Web3 Lawyer: Can Chinese Investors Legally Invest in Crypto Assets Through QDII?》, which may be able to answer some of the concerns of industry practitioners.
The following is the relevant content.
Undercurrents
The booming Bit market has had a huge impact on the traditional financial market. As the most widely watched Bit, the soaring price of Bit not only attracts the attention of individual investors, but also gradually becomes an asset allocation option for institutional investors. In the European and American markets, financial derivatives related to Bit, such as ETFs and trust funds, have been launched and widely welcomed.
However, in China, the policy trend is quite different. Since the state issued a comprehensive ban on virtual currency mining and trading in 2021, investing in Bit assets has become an "impossible task". This policy is based on the consideration of financial risk prevention, social stability maintenance, and RMB foreign exchange management. Domestic regulatory authorities are concerned that virtual currencies may lead to money laundering, illegal fundraising and other problems, and are also worried about their negative impact on energy consumption and environmental protection. This has led to a complete blockade of any direct access to Bit assets, from banking services to payment interfaces, and the legality review of related links has become increasingly strict.
For ordinary investors, it is almost impossible to invest in Bit assets through regular channels, and trying to open an account overseas is not an easy task either. This operation not only needs to overcome the technical and information barriers of overseas account opening, but also faces China's strict foreign exchange control, as well as the compliance and tax risks that may arise from cross-border capital flows. These restrictions have made the demand for Bit asset investment among domestic investors still exist, but they can only be carried out through "gray" or even illegal channels, further increasing the uncertainty in legal and financial aspects.
Even so, market demand still exists. For many Chinese investors, allocating Bit assets is not only for the pursuit of short-term returns, but also a demand for global asset diversification. So, can Bit assets be legally invested through the officially recognized QDII mechanism? This not only concerns the feasibility of investment, but also touches on the struggle between policy bottom line and market reality.
The Mechanism and Limitations of QDII: Let You Go Overseas, But Not Necessarily "Free"
The Qualified Domestic Institutional Investor (QDII) mechanism, which was launched in 2006, has been an important tool for Chinese investors to legally participate in the overseas market. This mechanism is an important attempt to gradually open China's capital account, aiming to provide domestic investors with legal channels to invest in overseas markets through specific institutions, while optimizing the use of foreign exchange reserves and managing the orderly flow of cross-border capital.
QDII allows qualified financial institutions, including banks, fund companies, securities companies and insurance companies, to design and sell financial products that invest in overseas markets. Through these products, domestic investors can indirectly participate in a variety of asset classes such as overseas stocks, bonds, funds and financial derivatives. The core of QDII's operation is that investors do not need to directly contact the overseas financial market, but achieve global asset allocation through the professional management of domestic institutions. This mechanism not only reduces the risks and costs of individual investors directly investing overseas, but also ensures the legality and compliance of capital flows.
However, QDII is not a "master key", and its operating mechanism and restrictive conditions determine that its investment scope and compliance are strictly controlled. It is a "window", but not a completely open "door".
The investment scope of QDII is jointly stipulated by the State Administration of Foreign Exchange and the China Securities Regulatory Commission, and all investment targets must meet the requirements of the overseas legal market. Traditional QDII products mainly involve stocks, bonds and traditional funds, with certain risk control attributes. But for emerging market assets, especially Bit assets, QDII has not yet clearly allowed. Even if Bit-related ETFs or trust funds are legal in the European and American markets, they may still be rejected by domestic regulatory agencies from being included in the QDII investment scope due to the "policy sensitivity" of the underlying assets. This uncertainty makes QDII unable to fully meet investors' demand for Bit assets.
QDII implements total quota management, and the foreign exchange administration allocates quotas to specific institutions every year based on market and foreign exchange reserve conditions. In recent years, due to the relatively slow pace of capital account opening, QDII quotas have been in short supply. Financial institutions tend to use these precious quotas for traditional asset classes with lower risk and more stable returns, rather than Bit assets with high policy uncertainty and huge market risks.
In addition, the core design concept of QDII is to provide a stable overseas investment channel, which is obviously at odds with the high volatility of Bit assets. The Bit market is known for its violent price fluctuations and relatively large market manipulation risks, with short-term fluctuations of more than 20% not uncommon. For the stable-oriented QDII investment products, this risk characteristic is not suitable.
The launch of QDII products requires multiple rounds of approval, and they need to meet the regulatory requirements of multiple parties from product design to final launch. Especially in the current context of domestic regulation maintaining high pressure on virtual currencies, it is a big question whether financial institutions have the motivation to develop QDII products related to Bit assets.
The fund product mentioned in the news event in the Alipay advertisement is a QDII. In simple terms, domestic retail investors can indirectly participate in overseas asset investment through investing in the above QDII fund, and then using the QDII fund as the main body for overseas layout. According to the 3rd quarter report of 2024 of Hwabao Overseas Technology Stock Securities Investment Fund (QDII-LOF), in the investment strategy section, it is written that "the fund mainly invests in overseas technology-themed funds (including ETFs), and ultimately invests in stocks that use technology as the long-term development support of the enterprise."
How much of the fund's investment is in Bit assets? Through professional analysis by the media, Hwabao Overseas Technology has about 4.93% of Coinbase stocks and 2.98% of Ark 21Shares Bit ETF, totaling 7.92%. Considering the latest scale of Hwabao Overseas Technology C at 406 million RMB, whether in terms of amount or proportion, Bit assets do not occupy a dominant position. So whether this fund can be considered a Bit fund may still need to be tested by time.
Feasibility and Risks: Theoretical Possibility, Daunting Difficulties in Reality
Although from a theoretical perspective, allocating Bit assets through QDII is not completely infeasible, in actual operation, this path is full of complex policy restrictions, institutional concerns, and investment risks.
In China, the legal status of Bit assets has long been in a "policy gray area". Although the government has banned the trading and mining of virtual currencies, its specific attitude towards indirect investment in Bit assets is not clear. Especially for participating in the Bit asset market through the legal mechanism of QDII, its legal nature is still highly controversial.
On the one hand, the Chinese regulatory authorities have very strict risk management requirements for financial products, and crypto-assets are considered a high-risk category due to their high volatility and potential market manipulation. Even if indirectly participating in crypto-asset investment through ETFs, trust funds, and other forms, the underlying asset attributes of these products may still be considered "not in line with domestic policy requirements" and thus be rejected from the QDII investment scope.
Furthermore, the stability of domestic regulatory policies is also a potential hidden danger. Even if a QDII product is approved, subsequent policy changes may lead to the suspension or even liquidation of the product, which is an uncontrollable major risk for investors. The instability of policy direction makes configuring crypto-assets through QDII more like a "high-risk policy exploration".
Even if the policy is relaxed, whether financial institutions are willing to develop QDII products related to crypto-assets is still a major challenge. This mainly involves the problem of high compliance costs. Designing a compliant QDII product requires a lot of time and resources, including multiple rounds of communication with the regulatory authorities, strict screening of investment targets, and the design of risk control solutions. For investment directions like crypto-assets with high volatility and high policy sensitivity, the compliance cost will further increase.
In addition, financial institutions also need to bear reputational risk and legal liability. If the crypto-asset market experiences violent fluctuations, causing investors to suffer significant losses, financial institutions may face investor complaints and even legal disputes. Furthermore, the institution's reputation may be affected due to product design issues, especially in an uncertain policy environment, this risk is more prominent.
The crypto-asset market is known for its violent fluctuations in the long run. For example, the price of Bitcoin has fallen by more than 30% in a month and then rebounded by more than 40% in a short period of time. This market characteristic poses extremely high requirements for the design of QDII products. The extreme distribution of returns and risks, the high uncertainty of crypto-asset investment returns, and the rapid decline after a period of price increase may cause investors' returns to "evaporate". This extreme risk distribution makes it difficult for institutions to design products that can both attract investors and control risks. In addition, the crypto-asset market is a highly complex and information-asymmetric field for ordinary investors. Many investors have a general lack of understanding of this market, and this information gap may lead to the risk of blind investment.
Lawyer Mankun's Summary: The Compliance Path is Promising, but Difficult to Achieve in the Short Term
From a theoretical perspective, configuring crypto-assets through QDII is a worthwhile exploration of a compliant approach, but the possibility of implementation is still relatively low under the current policy and market conditions. Whether it is policy ambiguity, institutional concerns, or the immaturity of market risks and investor awareness, this path does not seem smooth.
For ordinary investors, a more practical strategy is to gradually understand and participate in the crypto-asset market through other compliant means before the regulations are clear. At the same time, promote the further improvement of relevant policies to create conditions for the possibility of QDII investment in crypto-assets in the future. In the future, when policies are clear and the market is mature, QDII may become an important tool for Chinese investors to enter the crypto-asset market, but for now, all this still needs to wait.
