News has been tumultuous, and after experiencing consecutive spikes and corrections, Bitcoin has finally returned above 100,000 USD. The year-end market once again focuses on the actions of the Federal Reserve, with the market eagerly awaiting, but Alipay has brought a bit of shock to the industry at this time.
On December 12, according to reports from Wu said Blockchain, community users reported that recently some users in mainland China received advertisements for cryptocurrency fund promotions on the Alipay fund homepage, stating 'Global investment, cryptocurrency soaring, starting from 10 yuan, get in now.'
Upon verification, this fund is 'Huabao Overseas Technology C (QDII-FOF-LOF),' which has a purchase limit mechanism, allowing each person to purchase only 1000 yuan per day.
After receiving the news, I also checked Alipay but found the recommendation mechanism unclear; I did not receive this page promotion, while another colleague discovered cryptocurrency fund advertisements on the 'Global Investment' interface of the Alipay fund section.
In addition, Huabao's products are being normally sold on multiple fund distribution platforms, except Ant Wealth, with related displays on Licaitong, China Merchants Bank, and others. The cryptocurrency fund seems not to be limited to just Huabao Overseas Technology C; there are also recommendations for Guofu Global Technology Internet Mixed (QDII).
This move has quickly sparked discussions in the industry. Does this mean that China will lift the 'cryptocurrency ban'?
Further analysis of Huabao and Guofu reveals that both are affiliated with QDII, or Qualified Domestic Institutional Investor. QDII is a system implemented by China in 2006, allowing domestic institutions to invest in overseas capital markets' stocks, bonds, and other securities under controlled conditions and with approval from relevant authorities, despite the non-convertibility of the RMB capital account and the lack of an open capital market.
In other words, due to China's strict foreign exchange management system, domestic investors cannot directly invest in overseas capital markets, but through the establishment of QDII, domestic investors can use it as a medium to invest in overseas markets. This time, the two major cryptocurrency funds can allocate overseas assets precisely because they have been granted this qualification.
Huabao Overseas Technology C, aside from QDII, also features FOF-LOF, where FOF refers to a fund that mainly invests in other funds, and LOF denotes a listed open-end fund, allowing investors to not only subscribe and redeem at fund sales institutions but also trade at market prices on the stock exchange. Thus, Huabao Overseas Technology C is an open-end fund that can be traded through the exchange and invests in overseas funds.
The form is very nested, and in reality, it is also very nested; it's just a matter of layering from retail investors upward. In summary, retail investors within China can indirectly participate in overseas asset investments by investing in the aforementioned QDII funds and using QDII funds as the main body for overseas allocations. To put it bluntly, users invest their funds in the fund, and fund managers then use that capital to purchase overseas assets, which can also include cryptocurrencies. This way, the regulated purchase of cryptocurrencies is completed in a compliant manner.
Disclosure reports also confirm this, as per the quarterly report for Q3 2024 of the Huabao Overseas Technology Equity Securities Investment Fund (QDII-LOF), stating in the investment strategy section, 'This fund primarily invests in overseas technology-themed funds (including ETFs), ultimately investing in stocks that support long-term corporate development through technology.'
From an asset allocation standpoint, this fund invests 87.5% in funds, 8.9% in bank deposits and clearing reserves, with the remaining 3.6% in other asset combinations. The question arises: since cryptocurrency is the selling point, how significant is the investment proportion of crypto assets within the fund?
In the core fund investment business sector, more detailed investment specifics provide clarification. Among the top ten funds ranked by the proportion of fair value to net asset value, five belong to Cathie Wood's ARK ETFs, accounting for 73.11%. If we delve deeper, ARK ETFs hold Coinbase and its proprietary Bitcoin spot ETF Ark 21Shares Bitcoin ETF. In this way, Huabao achieves indirect investment in crypto through layers of structure. In total, Huabao's overseas technology investments include about 4.93% of Coinbase shares and 2.98% of Ark 21Shares Bitcoin ETF, totaling 7.92%.
Huabao Overseas Technology C's latest fund size is merely 406 million yuan, and the actual investment proportion in crypto assets is even less, resembling the practice of putting up a front while selling something else. Alipay has also implemented a limit on this fund, allowing each person to purchase only 1000 yuan per day. Unlike Huabao, Guofu mainly focuses on stocks, and there are no blockchain representations in its top ten quarterly disclosures. Even among the 36 equity holdings in the mid-term report, no blockchain companies were seen, indicating the low proportion of actual investment in crypto. It can be observed that, whether in amount or proportion, crypto assets do not hold a prominent position; rather, the fund itself promotes and markets crypto assets as a hot selling point.
In terms of performance, Huabao Overseas Technology C has essentially outperformed the market, achieving a net value growth of 25.02% this year, surpassing the Shanghai and Shenzhen 300's 16.25% by 9 percentage points. Its growth performance has been best over the past three months, with a net value growth of 29.23%. Of course, compared to directly holding Bitcoin, it is clearly far behind, and this fund also incurs a 1% management fee and a 0.2% custody fee, making the holding costs relatively higher.
However, for China, where 'regulatory clarity' prevails, this indeed opens a door for investors, providing them with a legal and compliant channel to hold cryptocurrencies indirectly. Alipay's direct advertisement promotion also allows more investors to access such assets, which, even if merely fund promotional hype, carries a positive significance for the industry.
On the other hand, given Alipay's significant position in China's industry, some speculate whether this is a sign of relaxation in the mainland.
Speculation is not baseless; after all, as the mainstreaming of Bitcoin accelerates, multiple countries have taken notice of crypto assets, even considering BTC as national reserves. In fact, since Hong Kong issued its virtual asset declaration, rumors about China lifting the ban on virtual currencies have been rampant. Just this July, Galaxy Digital's CEO Mike Novogratz even mentioned that China might lift the ban in the fourth quarter.
Recently, Zhao Changpeng reiterated at the Bitcoin MENA conference in Abu Dhabi that, although China's stance on cryptocurrencies is somewhat ambiguous and uncertain, the trend of establishing Bitcoin reserves is 'inevitable.' When the United States begins to establish Bitcoin reserves, it may trigger other countries to follow suit. China will eventually have to do the same, as Bitcoin is the only 'hard asset.' He also believes that based on China's national conditions, if implemented, China will likely choose to secretly accumulate Bitcoin on a large scale before officially announcing its strategic plan to the outside world at an appropriate time.
From the global recognition of Bitcoin and the regulatory trends in major countries, it seems that cryptocurrencies may have an opportunity for relaxation. However, based on China's current regulatory framework, it is too early to discuss any relaxation.
From this year, China's regulatory policies regarding virtual currencies have remained consistent, merely refining the regulatory context surrounding this matter. For instance, virtual asset trading has been included as a method for money laundering, and in-depth research is being conducted to improve the disposal processes and case handling of virtual currencies. Notably, during the recovery of the crypto market this year, multiple regions released the 2021 notice issued by ten departments including the People's Bank of China, the Cyberspace Administration, the Supreme People's Court, and the Supreme People's Procuratorate about further preventing and handling risks related to virtual currency trading speculation in the investor education sector. For example, the Shenzhen Municipal Financial Management Bureau first issued a notice in February, followed by another risk warning about virtual currency trading speculation in June.
Interestingly, the notice clearly states that 'Internet companies are not allowed to provide operational venues, commercial displays, marketing, and paid diversion services for virtual currency-related business activities. Any discovered illegal or irregular issues should be promptly reported to relevant departments, and technical support and assistance should be provided for related investigations and inquiries.' Despite the layers of structuring that can basically eliminate legal risks, the cautious Alipay's promotional behavior for this fund may still carry a certain degree of public opinion risk.
In mainstream media, there seems to be no sign of relaxation regarding virtual currencies. Mainstream media still presents a relatively negative attitude towards cryptocurrencies like Bitcoin. Even with Bitcoin prices exceeding 100,000 USD, the Xinhua News Agency's article titled 'The American Financial Ecology and Risks Behind the Bitcoin Surge' still used phrases like 'greedy capital and blind investors' to warn of risks.
In reality, even without considering the energy consumption, security risks, market fairness, and other issues related to cryptocurrencies, under the current strict foreign exchange control in China, taking into account the impact of digital currencies on sovereign currencies and the unique anti-censorship nature of decentralized currencies, fully opening up virtual currencies can only be described as a pipe dream.
The current central bank governor Pan Gongsheng's attitude makes achieving this goal even more challenging. As early as 2017, he was a well-known opponent of cryptocurrencies, stating at that time, 'As Keynes told us, the time the market can be irrational can be long enough to bankrupt you. Therefore, the only thing to do is to sit by the river and watch; one day, the corpse of Bitcoin will drift past you.'
In fact, from a regulatory perspective, there are currently no strong supporters of crypto in the political arena. Even Yao Qian, previously hailed as 'the most knowledgeable government official about blockchain' and 'the person in China most knowledgeable about digital currency,' was expelled from the party and public office last month, explicitly accused of using virtual currencies for power and money transactions.
To some extent, it seems that, at this stage in China, banning virtual currencies may be a form of political correctness. Of course, a complete opening is difficult, but partial relaxation is not hard to operate. Additionally, time is still long, and if the United States truly lists Bitcoin as a strategic reserve, it remains to be seen whether the top-level attitude will change.
However, from the current standpoint, indirect investment is at least a method of investment for investors who are relatively lacking in knowledge about virtual currencies. With the easing environment in Hong Kong, it can be expected that more flexible investment channels suitable for Chinese investors will emerge.
(The above content is excerpted and reprinted with the authorization of partner PANews, original link | Source: Tuo Luo Finance)
Disclaimer: The article only represents the author's personal opinions and does not reflect the views or positions of Block客. All content and opinions are for reference only and do not constitute investment advice. Investors should make their own decisions and trades, and neither the author nor Block客 will bear any responsibility for any direct or indirect losses resulting from investors' trades.
"The Alipay homepage suddenly features a promotion for 'Cryptocurrency Funds.' Is China about to 'lift the ban'?" This article was first published in (Block客).
