April 16, 2024
By Joe Pan
Hong Kong Securities and Futures Commission (SFC) approved the listing of exchange-traded funds tracking either Bitcoin or Ethereum on Monday, April 15.
Three leading asset management companies in Hong Kong, Bosera Asset Management, China Asset Management, and Harvest Global Investments, have secured licenses to launch spot exchange-traded funds (ETFs) for Bitcoin and Ethereum. These ETFs are not only the world’s first spot ETFs for Ethereum but also among the first for Bitcoin, following the US’s approval earlier this year.
Donald Day, Chief Operating Officer of VDX, a company that has applied to the SFC for a VATP license, commented on the potential for expanding the range of digital assets covered by these ETFs. He said, “The SFC has so far taken a conservative, step-by-step approach for the development of virtual asset regulation. Given the novelty of the products and the operational workflows for spot Digital Asset ETFs, we would expect the regulator and market to adopt a ‘wait-and-see’ approach before issuing further ETFs over additional coins, or baskets of coins.”
“The ETF regime in Hong Kong is broadly equivalent to the US regime,” he said. “However, the Hong Kong ETFs that are anticipated to be approved differ in one crucial aspect – they will feature ‘in-kind’ creation and redemption rights, which are notably absent from the US-approved ETFs.”
This “in-kind” mechanism allows the ETF price to be arbitraged against the spot price of BTC and ETH, ensuring that the ETF price closely mirrors the market price of these digital assets. Day added, “Additionally, natively long BTC or ETH holders would be able to seamlessly get exposure to a listed instrument, without having to exchange for fiat.”
OSL Digital Securiites, a core entity of OSL Group (863.HK), has been appointed as the first virtual asset trading platform and sub-custodian for Harvest Global’s spot BTC/ETH ETF. This partnership marks a pivotal development in the region’s financial sector, ushering in a new era of digital asset investment.
The introduction of these ETFs in Hong Kong is not just a milestone for the city but also a significant development for the broader crypto industry. The success of these ETFs could pave the way for more innovative financial products and attract even more investors to the digital asset market.
However, challenges remain for Hong Kong’s crypto industry. The licensed exchanges have faced volume challenges due to strict compliance measures compared to unlicensed platforms. Regulatory compliance, anti-money laundering measures, and building trust among investors are critical areas that require continuous attention to ensure the sustainable growth of Hong Kong’s crypto market.
Despite these challenges, the approval of spot BTC and ETH ETFs in Hong Kong signals a promising future for the city as a leading crypto financial hub. With mainland China’s vast pool of investors looking for overseas investment opportunities and the unique features of Hong Kong’s ETFs, the city has a window of opportunity to attract significant volumes and solidify its position before other jurisdictions catch up.
Spot BTC/ETH ETFs have been eagerly awaited globally, seen as a transformative vehicle for channeling substantial traditional funds and investors into the digital asset space. These ETFs simplify investment in digital assets like Bitcoin, enhancing accessibility and market liquidity.
Fabian Lischka, financial analyst with a major Swiss bank and a long-time critic of cryptocurrency, weighed in on the recent price movements of BTC and ETH. He said, “It is noteworthy that even after the introduction of USA spot bitcoin ETFs, many of the major movements in BTC spot price occurred outside US trading hours. It is unclear to me what the main price drivers are, but it is quite conceivable that Asia plays a big role.”
Lischka also questioned the motives behind the Asian demand for crypto, adding, “It is unclear to which extent demand in Asia is in it for the price action, that is, to get exposure, or rather for the regulatory arbitrage, that is, to avoid capital controls, money laundering rules, etc. The ETFs will only serve the former.”
To other investors, the most immediate positive sign brought about by the addition of spot ETFs in Hong Kong is not just in the market movement but also in the confidence it instills in those who have already invested in crypto. “I see this news as part of the bigger narrative that builds our conviction and the value of cryptocurrency,” said Peter Ponton, CEO of UK-based web3 venture Risidio and an early crypto asset investor. “Hong Kong confirms that BTC and ETH are legitimate alternative assets, and shows the rest of the world that the city is ready to become a global digital assets hub.”
Price of BTC and ETH 24 Hours before the announcement.
About the author
Joe Pan is producer and editor at NFTMetta.com.
