Globally, crypto assets have become a core component of the Web3 industry, drawing substantial interest from investors. According to CoinGecko, a cryptocurrency data analysis and aggregation platform, the total global market value of crypto assets surpassed $3.5 trillion as of January 3, 2025, growing at a pace that significantly outstrips traditional financial markets. As a cutting-edge sector merging emerging technologies with innovative ideas, Web3 is rapidly reshaping the global economic landscape.

▲Picture Source: CoinGecko Official Website

For Chinese enterprises, this transformation presents both challenges and opportunities. While traditional business models face disruption, companies also have the chance to integrate into the Web3 ecosystem and achieve groundbreaking advancements. However, configuring offshore crypto assets remains a complex undertaking for Chinese businesses. China’s financial regulatory framework maintains a cautious approach to crypto assets, with related laws and policies still evolving. To capitalize on Web3 opportunities, enterprises must fully understand compliance requirements, navigate legal frameworks, and identify effective pathways for managing offshore crypto assets.

This guide, prepared by Mankun Law Firm, offers a strategic framework to help Chinese enterprises legally allocate offshore crypto assets while adhering to regulatory standards, enabling them to gain early access to the growth potential of the Web3 industry.

Benefits of Chinese Enterprises Allocating Offshore Crypto Assets

As global financial markets become increasingly interconnected and technology advances rapidly, crypto assets have emerged as a key focus for investors worldwide. For Chinese enterprises, diversifying into offshore crypto assets offers several significant advantages:

1. Building a Diversified Portfolio

Allocating crypto assets allows enterprises to diversify their investments, reducing exposure to risks from single-market volatility. The relatively low correlation between crypto assets and traditional investments like stocks and bonds further strengthens the portfolio’s risk-return balance.

2. Hedging Against Risks

While crypto markets are known for their volatility, this same characteristic makes them valuable for hedging. Enterprises can mitigate risks in traditional assets by holding Bitcoin, Ethereum, and other digital currencies. Additionally, the growing derivatives market enables risk management through tools like futures and options, ensuring more refined control over financial exposure.

3. Tapping Into Web3 Growth Potential

The Web3 sector, heralded as the next era of the internet, is undergoing rapid expansion. With crypto assets playing a foundational role in this ecosystem, investing in them allows enterprises to directly participate in this transformative industry and benefit from its long-term growth trajectory.

4. Boosting Global Competitiveness

Investing in offshore crypto assets helps enterprises stay attuned to global financial trends while strengthening their international reputation. By collaborating with global partners, businesses can access vital resources and knowledge, fueling further innovation and development.

In conclusion, for Chinese enterprises, allocating offshore crypto assets is both a timely strategy for navigating today’s economic challenges and a forward-looking move to secure a foothold in the future. Many traditional companies are already looking to join this burgeoning industry rather than risk being left behind as the crypto sector flourishes.

Essential Requirements for Compliant Offshore Crypto Asset Allocation

This article discusses how to allocate offshore crypto assets, not because such assets are exclusive to offshore locations. In reality, crypto assets on public blockchains are not bound by physical territories or national borders. However, the description arises because there is currently no legal framework in China that supports enterprises in safely purchasing crypto assets. Furthermore, according to documents such as the “Notice on Further Preventing and Dealing with Risks of Virtual Currency Trading Speculation” issued by regulatory bodies including the People’s Bank of China, civil legal actions involving investment in virtual currencies and related derivatives are invalid. Financial institutions and non-bank payment institutions are prohibited from providing services for activities related to virtual currencies.

Thus, Chinese enterprises face difficulties such as unprotected transactions and lack of financial services when allocating crypto assets domestically. For Chinese enterprises, a feasible approach to compliant allocation of crypto assets is to “go offshore.” This means operating under the legal frameworks of crypto-friendly countries or regions through offshore subsidiaries.

If your enterprise already has a legal entity and funding in a crypto-friendly country/region, the process is relatively straightforward. If not, the first step is to register an overseas company through ODI (Outward Direct Investment). In the current global competitive environment, where “no globalization means being left behind,” establishing offshore subsidiaries through ODI to expand international business while allocating some crypto assets could be a complementary and forward-looking strategy.

1.What is ODI?

ODI stands for Outward Direct Investment. It refers to the investment activities of Chinese enterprises that directly or through their controlled overseas enterprises establish or control companies abroad via new establishment, acquisition, equity participation, or capital increase. These activities result in the enterprise acquiring ownership, control, or operational management rights. In simple terms, ODI refers to Chinese enterprises making direct investments overseas, including setting up subsidiaries or purchasing foreign company shares or assets. ODI filing is a procedural application filed with relevant authorities by domestic enterprises to ensure the legality and compliance of overseas investments.

2. ODI Filing Procedure

(1) Filing (or Approval) with the Development and Reform Commission

Enterprises need to submit a project application report and related materials to the Development and Reform Commission (DRC). The DRC will review the submitted materials. For general projects, if they meet the relevant regulations, the DRC will approve the filing within the specified working days and issue a “Notice of Filing for Overseas Investment Projects.” Major projects may require an approval process, followed by the issuance of the corresponding approval document.

(2) Filing (or Approval) with the Ministry of Commerce

Enterprises need to prepare an application form for overseas investment and other related documents. Upon receipt of the application, the Ministry of Commerce will conduct a compliance review of the enterprise’s overseas investment activities. For applications that meet the conditions, the ministry will complete the filing process within the specified period and issue an “Enterprise Overseas Investment Certificate.” For projects requiring approval, the approval document will be issued after review.

(3) Foreign Exchange Registration

Foreign exchange registration is completed at a bank, which acts as an agent of the Foreign Exchange Bureau to conduct reviews. For investments exceeding USD 5 million, the Foreign Exchange Bureau must be notified. After review, the bureau will issue a “Certificate of Foreign Exchange Registration for Outward Direct Investment” to the domestic enterprise.

Enterprises should ensure that they provide truthful information about overseas investment projects during ODI, and that funds are used for legitimate overseas investment projects. Funds should not be used for illegal activities such as money laundering or tax evasion. Additionally, enterprises must ensure that the use of ODI funds complies with local laws and regulations to avoid penalties for non-compliance.

Four Main Methods for Allocating Offshore Crypto Assets

Once a company establishes a legal entity and secures funds overseas, it can choose from the following options to allocate its crypto assets effectively:

1. Direct Crypto Purchases

In regions with crypto-friendly policies, companies can directly purchase crypto assets through various compliant channels, such as licensed cryptocurrency exchanges, banks supporting crypto transactions, brokers with crypto business capabilities, or over-the-counter (OTC) trading platforms. Companies intending to purchase crypto assets through these methods must choose the appropriate channel based on their needs and qualifications:

Cryptocurrency Exchanges: Companies need to complete the registration process with the exchange, submit relevant company documentation, and, after approval, deposit funds into their exchange account. They can then purchase their desired crypto assets based on market conditions and investment strategies, ensuring that transaction records are properly maintained.

Banks: Companies must provide detailed financial information and business background to banks. Once crypto asset trading services are activated, they can purchase assets according to the bank’s transaction procedures and quota limits.

Brokerage Firms: After opening an account and completing a risk assessment with the selected broker, companies can transfer funds to the designated brokerage account and engage in crypto asset trading.

OTC Markets: Companies must carefully select reliable counterparties. Whether using online platforms or offline channels, they must negotiate transaction details such as price and quantity, and complete transactions via agreed payment and asset transfer methods while ensuring compliance and asset security.

Advantages: This method is relatively straightforward, allowing companies to independently select the type and quantity of crypto assets for investment. Companies can respond flexibly to market changes, quickly realize asset appreciation during favorable market conditions, and avoid additional costs like fund management fees.

Risks: The high volatility of the crypto market could lead to rapid asset value fluctuations. Additionally, companies must implement adequate security measures to protect assets from theft or cyberattacks.

2. Purchase of Crypto ETFs

A crypto exchange-traded fund (ETF) is a specialized fund that allows investors to indirectly invest in cryptocurrencies through regulated financial markets. These ETFs typically hold a basket of crypto assets, such as Bitcoin, Ethereum, or other popular digital currencies, representing the broader crypto market or specific indices. Countries or regions like the United States, Hong Kong, Brazil, Australia, Thailand, and Malaysia have launched Bitcoin and Ethereum spot ETFs.

General Steps: Overseas subsidiaries must open trading accounts on securities exchanges that offer crypto ETF trading, complete the necessary account setup, and conduct risk assessments. Subsequently, they can buy or sell ETF shares via securities trading software or brokers, following the rules and processes of securities trading.

Advantages: Compared to direct crypto purchases, crypto ETFs diversify investment risks by covering multiple assets, reducing the impact of single-asset volatility. Their trading method is similar to stocks, making them easier to operate and manage, with relatively low transaction costs.

Risks: Crypto ETF prices may deviate from the tracked crypto index due to tracking errors, affecting expected returns. Liquidity issues could also arise in volatile markets, making it difficult for companies to trade at optimal prices.

3. Subscription to Crypto Fund Shares

A crypto fund refers to private investment funds focused on cryptocurrencies, blockchain projects, digital assets, and related technologies. These funds are typically managed by professional fund managers who leverage their expertise to select, evaluate, and manage portfolios for returns.

General Steps: Companies must research and screen available crypto funds, evaluating performance, strategy, and management teams. Once a fund is chosen, companies complete subscription procedures as required, which usually involve KYC (Know Your Customer), AML (Anti-Money Laundering) checks, signing agreements, and transferring funds in fiat or stablecoins.

Advantages: Companies benefit from the professional expertise of fund management teams, enhancing success rates in navigating the complex crypto market. This approach saves resources on market analysis and transaction execution.

Risks: Fund performance depends on management teams and market trends. Poor management or adverse market conditions could lead to losses. Additionally, as the crypto fund sector is still emerging, some funds may face issues like poor regulation or lack of transparency, increasing uncertainty.

4. Purchase of Web3 Concept Stocks

This indirect approach involves investing in publicly traded Web3 companies, which may include two types:

1. Companies deeply integrated with blockchain and crypto technologies, focusing on infrastructure development or decentralized applications (e.g., Coinbase, Riot Blockchain, Block, Inc.).
2. Companies holding large reserves of mainstream cryptocurrencies like Bitcoin, such as MicroStrategy, Marathon Digital, and Boyaa Interactive.

General Steps: To purchase stocks, companies research and evaluate the financial health, business models, and market prospects of Web3 or crypto-related public companies. Overseas subsidiaries open securities accounts on relevant exchanges to buy stocks. If the target stocks are listed on Stock Connect, domestic entities can also buy them using local accounts.

Advantages: Investing in these companies allows firms to share in the growth of the Web3 industry. Collaborations with such companies could provide additional technical and market resources, boosting innovation and transformation.

Risks: Stock prices are affected by various factors, and market volatility could impact investment value. The fast-evolving Web3 industry also brings significant competition, requiring continuous innovation to maintain relevance.

Summary by Mankun Lawyers

In summary, compliant allocation of offshore crypto assets provides enterprises with the opportunity to diversify their investments, hedge risks, and leverage the growth of the Web3 industry to support innovation and development. However, ensuring compliance and security is critical. For Chinese companies, conducting crypto asset allocation in countries or regions with favorable crypto policies is a fundamental step toward ensuring compliance. When selecting allocation strategies, companies must carefully evaluate their needs and risk tolerance. Each approach comes with specific benefits and risks, making it essential to make informed investment decisions based on a thorough understanding of the market and the company’s circumstances.

Mankun Lawyers emphasizes that due to the complex legal and financial issues involved, professional legal support is indispensable. As a pioneer in Web3-focused legal services within the Chinese-speaking world, Mankun Lawyers brings a global network, deep expertise in crypto regulations, and extensive practical experience. We provide end-to-end legal support worldwide, from identifying crypto-friendly jurisdictions and assisting with ODI applications to conducting compliance reviews, risk assessments, and designing transaction structures. Our goal is to help enterprises allocate offshore crypto assets lawfully and effectively, achieving global asset diversification and sound risk management.

Disclaimer:

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