Here's How Mainland China May Allow Chinese Traders Access to Bitcoin

Blockchain and Crypto have a complicated status in China: Beijing says no to crypto but yes to blockchain. It bans trading yet builds infrastructure.

Now, with Hong Kong offering regulated crypto markets, insiders say a loophole is emerging.

If China already allows investors to buy U.S. stocks through its Qualified Domestic Institutional Investor (QDII) program, why not bitcoin? The key, one expert argued on stage at Consensus Hong Kong, is control, and Beijing may have just found a way to keep it.

In China, there are two systems for mainland investors to buy and sell stock outside the country. First, there’s QDII, which allows select investors to buy U.S. ETFs using RMB.

Then there's also the Shanghai-Hong Kong Connect and Shenzhen-Hong Kong Connect, which let Chinese investors buy and sell Hong Kong stocks through mainland securities firms, with all trades settled in RMB.

"The key [with these systems] is that capital never flows freely out of China, and if you apply this same logic to crypto, there’s no reason it couldn’t work the same way," Yifan He, CEO of Red Date technology, said on stage at Consensus Hong Kong.

He emphasized that the biggest regulatory hurdle isn’t crypto itself, but capital controls, ensuring that funds don’t move freely in and out of China.

These capital controls are in place to prevent excessive currency fluctuations and capital flight, in order to maintain the stability and value of the RMB. They are also one of the reasons why Hong Kong's crypto ETFs, with their in-kind redemptions, were not allowed on the mainland.

"What’s the difference between a Hong Kong-regulated stock and a Hong Kong-regulated crypto asset?" He continued. "If they have a system for you to buy and sell in RMB, but never move money outside China, then it's just another regulated investment product."

This system would not allow Chinese investors to self-custody their crypto. Instead, purchases would be held by an intermediary, such as a licensed securities firm.

"They buy crypto directly, but it’s not like they’re holding it themselves," He said, noting that "the security company in the middle actually holds it for you."

This model aligns with China’s approach to stock and ETF investments.

Just as mainland investors can trade U.S. ETFs through QDII but never take direct custody, they could gain exposure to crypto without owning the underlying assets – no money moves across borders.

For a nation with 200 million retail investors and an economy in need of stimulus, regulated crypto access through Hong Kong's sandbox might offer Beijing a calculated compromise

Blockchain versus Crypto

China has long been a proponent of blockchain technology, while taking a cold approach to crypto.

"We don't allow guns in China, but we can still make steel," He explained as an analogy. "The technology is not regulated so that you can build all kinds of applications. But when some application triggers regulations, that’s different."

But based on his conversations with financial regulators, this could be changing.

"I see some signal from financial regulators," He said. "They're beginning to talk about bitcoin, saying we need to pay more attention and do more research on digital assets."

Could this lead to broader adoption? Two years ago, He would have said ‘zero chance.’

"Now, I’d say there’s more than a 50% chance in three years," He concluded.

And you can take those odds to Polymarket, which currently stands at 2% chance of China unbanning bitcoin in the country.