China’s ‘First’ Blockchain ETF Application Filed

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China is known to favor blockchain while concurrently opposing cryptocurrencies. However, the industry might take another turn in 2020. According to a disclosure originating from the China Securities Regulatory Commission, there is a blockchain-focused exchange-traded-fund (ETF) which was filed with the country’s securities regulator.

The proposal was filed by Penghua Fund, a Shenzhen-based asset manager, on December 24. This filing is for an ETF that will track the performance of a group of publicly-listed stocks from companies in the blockchain industry. This fund will become the first blockchain-themed ETF if it gets approved.

Blockchain 50 Index Launches On Shanghai Stock Exchange

The Shenzhen Stock Exchange announced its “Blockchain 50 Index” on the same day that Penghua Fund’s proposal was submitted. This index is composed of the top 50 Shenzhen-listed blockchain firms categorized by market capitalization. Interestingly, the list features Midea Group, Ping An Bank, and Zixin Pharmaceuticals, among many others.

Reports reveal that the firms in the new index represent a wide cross-section of the sector. Specializations represented here include technology and services, hardware development, and blockchain application.

Clearing The Path

Analysts are convinced that if Penghua Fund’s proposal succeeds, many other asset managers may follow suit with their fund proposals. Even as the blockchain industry is still nascent, the deepening of policy guidance and an increasing number of mature firms in the sector may result in increased popularity of the domestic blockchain-themed ETFs.

A fund manager from a Beijing-based firm who chose to remain anonymous said that many investors still do not have an adequate orientation to invest in the blockchain sector. But, ETFs may offer these investors with a convenient investment channel through a diversified basket of assets. Thus, they can get dividends as the industry develops further.

Dong Weiwei, Everbright Prudential Fund Manager, said that blockchain has a wide-ranging cross-industry potential as a distributed and highly secure technology. Weiwei focused on blockchain’s potential to innovate Internet of Things technology, digital finance, supply chain management, intelligent manufacturing, and digital assets, among many others.

Pro-blockchain, Anti-Private Cryptos

The US securities regulator (Securities and Exchanges Commission) has spent several years deferring its decision on several crypto-focused ETF proposals. On its part, Beijing continues to maintain a firm anti-crypto line in contrast to its positive stance towards blockchain technology.

2019 saw President Xi Jinping make a watershed endorsement of blockchain technology. Though China does not support private tokens, the People’s Bank of China is expected to be the first central bank in a major global economy to introduce a central bank digital currency (CBDC). But, the bank has insisted that the digital Yuan is entirely different compared to Bitcoin, other private digital assets, and stablecoins.

Regulator Worried About Crypto Resurgence

As blockchain developments continue in China, the country’s securities regulator has urged authorities to implement all the necessary measures to prevent the usage of cryptos by the public.

The China Securities Regulatory Commission (CSRC) announced on its website, pointing out the risks associated with the resurgence of digital currencies. Some of these risks include digital currency mortgage provision, the escalation of crypto trading activities, and the introduction of zero-interest loans.

According to the announcement, cryptos may cause severe violations of the People’s Bank of China (PBoC) provisions. Four Beijing-local regulators were signatory to that announcement.

To solve these risks, regulators warned the public and called on local authorities to fight all crypto-related illegal activities in Beijing. The warnings came as a reminder of the Chinese government’s negative stand towards cryptocurrencies and digital assets.

According to the regulators, legal entities and individuals must avoid crypto investments, sales, and transactions. They must also not engage foreign or domestic agents to trade any cryptocurrencies.

The Crackdown

PBoC recently strengthened its crackdown on crypto-related operations in the country. The bank earlier warned that it would take legal action against entities involved in trading crypto, and that decision hit the general crypto markets considerably. In November, Shenzhen City revealed a crypto trading operations-related investigation headed by the PBoC.

Industry leaders and influencers like Binance CEO Changpeng Zhao praised what they think is an effort by the government to eliminate criminals from the industry. China supported blockchain technology in late October but discouraged its citizens from ‘speculating’ about cryptos. The authorities said that blockchain endorsement must never be mistaken for crypto support in the country.

The People’s Daily wrote at the time:

“The rise of blockchain technology was accompanied by that of cryptocurrencies, but innovation in blockchain technology does not mean we should speculate in virtual currencies.”

Will China’s authorities let crypto-related activities to return within their jurisdiction? Time will tell.

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