The rapid development of the encrypted asset market has had a huge impact on traditional financial markets. As the most closely watched encrypted asset globally, the surge in Bitcoin's price has not only attracted the attention of individual investors but has gradually become an asset allocation option for institutional investors. In European and American markets, financial derivatives related to Bitcoin, such as ETFs and trust funds, have already been pushed to the market and received widespread popularity.
However, in China, the policy direction is completely different. Since the state issued a comprehensive ban on virtual currency mining and trading in 2021, investing in encrypted assets has almost become an 'impossible task'. This policy is based on the prevention of financial risks, maintenance of social stability, and considerations of RMB foreign exchange management. Domestic regulatory agencies are concerned that virtual currencies may lead to money laundering, illegal fundraising, and other issues, while also worrying about their negative impacts on energy consumption and environmental protection. This has resulted in a complete blockade of any channels that directly engage with encrypted assets, from banking services to payment interfaces, with increasingly strict legality reviews of related processes.
For ordinary investors, it is almost impossible to invest in encrypted assets directly through formal channels, and attempting to open accounts overseas is not an easy task either. This operation not only needs to overcome the technical and informational barriers of opening accounts abroad but also faces strict foreign exchange controls in China, as well as compliance and tax risks that may arise from cross-border capital flows. These restrictions mean that although there is a demand for encrypted asset investment among domestic investors, it often can only be conducted through 'gray' or even illegal channels, further increasing legal and financial uncertainty.
Even so, market demand still exists. For many Chinese investors, allocating encrypted assets is not just about pursuing short-term gains; it is also a demand for global asset diversification. So, can encrypted assets be legally invested in through the officially recognized QDII mechanism? This not only concerns the feasibility of investment but also touches on the struggle between policy bottom lines and market realities.
The mechanism and restrictions of QDII: It allows you to go overseas but does not necessarily grant you 'freedom'.
The Qualified Domestic Institutional Investor (QDII) mechanism has been an important tool for Chinese investors to legally participate in overseas markets since its introduction in 2006. This mechanism is a significant attempt at gradually opening China's capital account, aiming to provide legitimate channels for domestic investors to invest in overseas markets through specific institutions, while also optimizing the use of foreign exchange reserves and managing cross-border capital flows in an orderly manner.
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 investments across various asset classes, such as overseas stocks, bonds, funds, and financial derivatives. The core operation of QDII is that investors do not need to directly engage with overseas financial markets but can achieve global asset allocation through professional management by domestic institutions. This mechanism not only reduces the risks and costs of direct investment in overseas markets for individual investors but also ensures the legality and compliance of fund flows.
However, QDII is not a 'universal key'; its operational mechanism and limiting conditions dictate that its investment scope and compliance are strictly controlled. Although it is a 'window', it is not a completely open 'door'.
The investment scope of QDII is jointly regulated by the State Administration of Foreign Exchange and the China Securities Regulatory Commission, and all investment targets must comply with the requirements of legitimate overseas markets. Traditional QDII products mainly involve stocks, bonds, and traditional funds, which have certain risk control attributes. However, for emerging market assets, especially encrypted assets, QDII has not explicitly allowed them at present. Especially for encrypted asset-related ETFs or trust funds, even if they are legal in European and American markets, they may still be rejected from the QDII investment scope by domestic regulatory agencies due to the 'policy sensitivity' of the underlying assets. This uncertainty means QDII cannot fully meet investors' needs for encrypted assets.
QDII implements total quota management, with the foreign exchange administration allocating quotas to specific institutions each year based on market and foreign exchange reserve conditions. In recent years, due to the slow pace of capital account opening, QDII quotas have been in short supply. Financial institutions tend to use these precious quotas for lower-risk, stable-return traditional asset classes rather than for encrypted assets, which have high policy uncertainty and market risks.
Moreover, the core design philosophy of QDII is to provide robust overseas investment channels, which is clearly incompatible with the high volatility of encrypted assets. The encrypted asset market is known for its severe price fluctuations and significant market manipulation risks, with situations of price changes exceeding 20% in a short period not being uncommon. For QDII investment products that are stability-oriented, this risk characteristic is not suitable.
The launch of QDII products requires multiple rounds of approval, and from product design to final launch, they must comply with various regulatory requirements. Especially against the current background of high-pressure domestic regulation on virtual currencies, whether financial institutions have the motivation to develop QDII products related to encrypted assets remains a huge question mark.
Feasibility and Risk: Theoretical possibilities face numerous practical difficulties.
Although theoretically, it is not entirely impossible to allocate encrypted assets through QDII, in practice, this path is filled with complex policy restrictions, institutional concerns, and investment risks.
In China, the legal status of encrypted assets has long been in a 'policy gray area'. Although the government has banned trading and mining activities related to virtual currencies, its specific attitude towards indirect investment in encrypted assets is not clear. In particular, participating in the encrypted asset market through legitimate mechanisms like QDII remains highly controversial in terms of its legal nature.
On one hand, Chinese regulatory agencies have very strict risk management for financial products, while encrypted assets are considered a high-risk category due to their high volatility and potential for market manipulation. Even indirect participation in encrypted asset investments in the form of ETFs or trust funds may still be rejected from the QDII investment scope if the underlying asset properties are deemed 'not compliant with domestic policy requirements'.
In addition, the stability of domestic regulatory policies is also a potential hidden danger. Even if a certain QDII product is approved, subsequent policy changes may lead to product suspension or even liquidation, which poses a significant uncontrollable risk for investors. The instability of policy direction makes the allocation of encrypted assets through QDII seem more like a 'high-risk policy trial'.
Even if policies are relaxed, whether financial institutions are willing to develop QDII products related to encrypted assets remains a significant challenge. This mainly involves the issue of high compliance costs. Designing a compliant QDII product requires a substantial amount of time and resources, including multiple rounds of communication with regulatory authorities, strict selection of investment targets, and the design of risk control plans. For high volatility and highly policy-sensitive investment directions like encrypted assets, compliance costs will increase further.
Additionally, financial institutions also need to bear reputational risks and legal liabilities. Once the encrypted asset market experiences severe volatility, leading to significant losses for investors, financial institutions may face investor complaints or even legal lawsuits. Furthermore, an institution's reputation may be affected by product design issues, especially in situations where the policy environment remains unclear, making this risk even more pronounced.
The encrypted asset market is long known for its extreme volatility. For instance, Bitcoin's price once fell over 30% in a month, only to rebound over 40% shortly after. This market characteristic poses high demands for the design of QDII products. The extreme distribution of returns and risks means that investment returns in encrypted assets carry a high degree of uncertainty; even if prices rise during a certain period, subsequent rapid declines could turn investors' gains into 'puffs of smoke'. This extreme risk distribution makes it challenging for institutions to design products that can attract investors while also controlling risks. Additionally, the encrypted asset market is a highly complex and information-asymmetric area for ordinary investors. Many investors generally lack awareness of this market, and this information gap may lead to blind investment risks.
Lawyer Mankiw summarizes: A compliant path is hopeful, but difficult to achieve in the short term.
Theoretically, allocating encrypted assets through QDII is a compliance method worth exploring, but under the current policy and market conditions, the feasibility remains low. Whether it is policy ambiguity, institutional concerns, or the immaturity of market risks and investor cognition, all make this path seem quite challenging.
For ordinary investors, a more practical strategy is to gradually understand and participate in the encrypted asset market through other compliant means before regulatory clarity is achieved. At the same time, it is essential to promote the further improvement of relevant policies to create conditions for the possibility of future QDII investments in encrypted assets. In the future, when policies are clear and markets mature, QDII may become an important tool for Chinese investors to enter the encrypted asset market, but for now, all of this still needs to wait.
