Alipay's homepage is now being promoted by crypto funds. Will the mainland “lift the ban”?
The year-end market once again focused on the actions of the Federal Reserve. The market was eagerly awaiting it, but Alipay, at this point, brought a bit of shock to the industry.
The news had ups and downs, and after a series of pins and repairs, Bitcoin has finally returned above $100,000. The year-end market once again focused on the actions of the Federal Reserve. The market was eagerly awaiting it, but Alipay, at this point, brought a bit of shock to the industry.
On December 12, according to Wu's blockchain report, community users reported that recently, some mainland Chinese users received a cryptocurrency fund promotion advertisement on the Alipay Fund homepage. The content showed “Global investment and cryptocurrency soared, starting at 10 yuan, and immediately on the bus.” After verification, the fund is Huabao Overseas Technology C (QDII-FOF-LOF). The fund has a limited amount mechanism and is limited to purchases of RMB 1,000 per person per day.
After receiving this news, the author also went to Alipay to check it, but the recommendation mechanism was unclear. The author did not receive promotion on this page, but another colleague found an advertisement for crypto funds on the “Global Investment” interface in Alipay's fund section. In addition, Huabao's products are sold normally on various fund sales platforms in the industry other than Ant Wealth, and Wealth Connect, CMB, etc. also have related displays. The crypto fund also seems to be more than just Huabao Overseas Technology Class C; the interface also recommends Guofu Global Technology Connectivity Hybrid (QDII).
The move quickly sparked a buzz in the industry. Does this mean the liberalization of the mainland?
Further analysis of Huabao and Guofu revealed that both belong to QDII, that is, qualified domestic institutional investors. QDII is a system that China began implementing in 2006. It refers to an arrangement that allows domestic institutions to invest in marketable securities investment businesses such as stocks and bonds in overseas capital markets, established within a country under conditions where RMB capital projects are not exchangeable and capital markets are not open, with the approval of relevant departments and controlled areas.
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 this as a medium to invest in overseas markets. The two major crypto funds can lay out overseas assets this time, and it is precisely because they have been granted this qualification.
After Huabao Overseas Technology C, in addition to QDII, there is also the word FOF-LOF. FOF refers to a fund whose main investment target is a fund. LOF means that in addition to purchasing and redemption operations at fund sales institutions, investors can also trade at market prices on stock exchanges. As a result, Huabao Overseas Technology C is an open-ended fund that can be traded on exchanges and invested in overseas funds.
The form is a matryoshka; in reality, it is also a matryoshka; it's just a matter of putting on the shell from the retail side up. In summary, domestic retail investors can indirectly participate in overseas asset investment through the above model of investing in QDII funds and then using QDII funds as the main focus for overseas layout. To put it bluntly, the user invests the funds in the fund, and the fund manager then uses the funds to buy overseas assets, and the overseas assets also include crypto assets, thus completing the purchase of regulated crypto assets in a compliant manner.
The disclosure report also confirms this point. According to the Huabao Overseas Technology Equity Securities Investment Fund (QDII-LOF) report for the 3rd quarter of 2024, in the investment strategy section, it is written that “the fund mainly invests in overseas technology-related funds (including ETFs), and ultimately invests in stocks that support the long-term development of enterprises.”
In terms of asset allocation, the fund invests 87.5% in the fund, 8.9% in bank deposits and settlement provisions, and the remaining 3.6% in other assets in the asset portfolio. The question is, since crypto is the selling point, how much of the investment in crypto assets is in the fund?
In the core fund investment business section, more detailed investment details will answer this. Among the top ten funds ranked by fair value as a proportion of the fund's net asset value, 5 are ARK ETFs owned by Sister Mu Toujie, accounting for 73.11%. If penetration continues, there are Coinbase and its own Bitcoin spot ETF Ark 21Shares Bitcoin ETF in ARK ETF's holdings. In this way, Huabao has achieved indirect cryptographic investment through a layer of match-fixing. In terms of total volume, Huabao's overseas technology investments include about 4.93% of Coinbase shares and 2.98% of Ark 21Shares Bitcoin ETF, for a total of 7.92%.
The latest size of Huabao Overseas Technology C's fund is less than 406 million yuan, and the actual investment in crypto assets is even less than enough. There is quite a pattern of selling dog meat on sheep's head. Alipay has also applied a limit on this fund, and each person can only buy 1,000 yuan per day. Unlike Huabao, China Wealth mainly focuses on stocks. There was no blockchain presence in the top ten disclosures of the quarter. Even among the 36 equity holdings in the interim report, blockchain companies were not seen. It can be seen that the actual share of crypto investment is small. As can be seen, no matter in terms of amount or proportion, crypto assets do not have an advantage; it is more that the fund itself uses crypto assets as a hot gimmick to promote and hype.
In terms of performance, Huabao's overseas technology C trend has basically outperformed the market. Since this year, it has achieved a net worth increase of 25.02%, which is 9 percentage points higher than 16.25% of the Shanghai and Shenzhen 300. Growth was the best in recent March, with a 29.23% increase in net worth. Of course, if you compare it with directly holding Bitcoin, it's obviously far different, and the fund also has a 1% management fee and a 0.2% escrow fee, so the holding cost is also relatively higher.
However, for the mainland, where regulations are clear, this has indeed opened up an opening for investors, giving investors a legal and compliant channel to hold cryptocurrencies. Alipay's direct advertising and promotion also allows more investors to touch this type of asset. For the industry, even if it's just fund promotion and hype, it has positive significance.
On the other hand, given Alipay's important position in China's industry, some people also speculate whether this is a precursor to mainland liberalization.
Speculation is not out of the blue. After all, with the acceleration of Bitcoin's mainstreaming process, many countries have taken notice of crypto assets and even used BTC as a national reserve. In fact, since Hong Kong issued the virtual asset declaration, there have been endless rumors about China's lifting of the virtual currency ban. Just in July of this year, Galaxy Digital general manager Mike Novogratz also mentioned that China would lift the ban in the fourth quarter.
Recently, at the Bitcoin MENA conference held in Abu Dhabi, Zhao Changpeng once again stated that although China's position in the cryptocurrency field is vague and uncertain, the trend of building Bitcoin reserves is “inevitable.” When the US actually starts to build up Bitcoin reserves, it is likely that other countries will start to follow suit. China will have to do the same at some point, because Bitcoin is the only “hard asset.” It also believes that according to China's national conditions, if it is to be implemented, China will probably choose to secretly hoard Bitcoin on a large scale before officially announcing its strategic plan to the outside world at an appropriate time.
In terms of Bitcoin's global acceptance and major national regulatory trends, there seems to be an opportunity for cryptocurrencies to relax. However, judging only from our country's current regulatory landscape, it is still too early to talk about liberalization.
Looking at this year, the consistency of China's virtual currency supervision policy has not changed. It has only improved the regulatory context around this matter. For example, it has included “virtual asset” transactions in money laundering methods, and thoroughly studied and perfected virtual currency disposal procedures and case handling. If you pay attention, when the crypto market recovered this year, many places also once again published the “Notice on Further Preventing and Handling the Risk of Virtual Currency Trading Hype” issued by 10 departments including the People's Bank of China, the Internet Information Office, the Supreme People's Court, and the Supreme People's Procuratorate in the investor education section. Taking the Shenzhen Local Financial Administration as an example, it first issued a notice in February, and then issued the “Risk Warning on Virtual Currency Trading Hype” again in June.
What is quite interesting is that the notice clearly states, “Internet companies shall not provide services such as online business sites, commercial displays, marketing and promotion, and payment diversion for virtual currency-related business activities; they should promptly report any clues of illegal violations to the relevant departments, and provide technical support and assistance for related investigations and investigation work.” Although legal risks can basically be eliminated through layers of containment, Alipay's promotion of this fund, which has always been cautious, may also present a certain degree of public opinion risk.
According to mainstream media, virtual currencies also seem to show no signs of liberalization. Mainstream media still show a negative attitude towards crypto assets such as Bitcoin. Even though the price of Bitcoin exceeds 100,000 US dollars, words such as “greedy capital and blind investors” are still used in the Xinhua News Agency's “US Financial Ecology and Risks Behind the “Bitcoin Boom” article to warn of risks.
In fact, even without considering other issues such as energy consumption, security risks, and market fairness of cryptocurrencies, in the context of China's strict foreign exchange control at this stage, considering only the impact of digital currencies on sovereign currencies and the unique censorship resistance of decentralized currencies, the need to fully liberalize virtual currency can only be described as a matter of heaven and night.
The attitude of Pan Gongsheng, the current governor of the central bank, has also made this goal more difficult. As early as 2017, it was a well-known cryptocurrency opponent who stated at the time, “As Keynes told us, the market can take an irrational period of time to bankrupt you. So there's only one thing you can do, sit by the river and watch, and one day, Bitcoin's dead body will drift past you.”
In fact, from a regulatory perspective, there are currently no strong supporters of crypto in the political world. Even Yao Qian, who was previously known as “the government official who knows the most about blockchain” and “the person who knows the most about digital currencies in China,” was expelled from his party membership and public office last month, and was even bluntly accused of using virtual currency for power and money transactions in published approvals.
To a certain extent, at this stage in our country, banning virtual currencies is probably just a form of political correctness. Of course, full liberalization is very difficult, and partial lifting of the ban is not difficult to operate. Moreover, it is still a long time. If the US actually lists Bitcoin as a strategic reserve, it is unknown whether the attitude of the top management will change accordingly.
However, judging from this stage alone, indirect investment is at least an investment method for investors with relatively poor knowledge of virtual currencies. However, in the general environment of liberalization in Hong Kong, it is foreseeable that more flexible investment channels adapted to Chinese investors will emerge in the future.
