In a significant development last Monday, Hong Kong's financial regulator, the Securities and Futures Commission (SFC), approved for the launch of the first-ever spot Bitcoin and Ether exchange-traded funds (ETFs) in the country. This is a significant development for Hong Kong's markets, similar to what's been happening recently in the U.S. with the new and highly demanded Spot Bitcoin ETFs.
Just over three months ago, the U.S. markets witnessed a historic step forward into crypto adoption as ten Spot Bitcoin ETFs were greenlit and began trading after years of rejected applications by the Securities and Exchange Commission (SEC). The launch was a resounding success, with the category attracting a significant amount of investment – pushing the nascent Spot Bitcoin ETF (TSX:EBIT) category to over $60 billion in assets under management.
While the U.S. ETF industry garnered the most attention, people tend to forget that Canada holds the distinction of being the first mover. In 2021, Canadian issuer Purpose Investments launched the world's very first Spot Bitcoin ETF. Moreover, Europe has long provided similar investment opportunities in major cryptocurrencies, such as Bitcoin and Ether through exchange-traded products (ETPs). European issuers, like 21Shares and others, have also provided investors with access to a broader array of other smaller cryptocurrencies, including Litecoin, Ripple, and Solana, among others.
Who is Launching the Crypto ETFs in Hong Kong?
Three ETF providers have received approval, including ChinaAMC, which was granted permission by the SFC to provide "virtual asset management services." This approval is a key component of ChinaAMC's strategy to develop a spot Bitcoin and Ether ETF, for which OSL Digital Securities has been designated as the custodian.
Likewise, Harvest Global and Bosera International have also secured permission to introduce their own crypto ETFs, although these products are not yet available on the market.
When Will the Hong Kong Crypto ETF Begin to Trade?
There's no confirmed launch date for the Hong Kong Crypto ETF yet, but experts are offering predictions. Industry insiders like OSL, suggest a late April launch for Bitcoin ETFs. Markus Thielen, the founder of crypto research firm 10x Research, adds his voice to the discussion. He sees a possible launch on April 30th but acknowledges that final regulatory approval could cause delays.
Despite the uncertain launch date, analysts are optimistic. They expect these ETFs to be popular, attracting significant investment. Some, like Singapore-based Matrixport, predict a potential $25 billion inflow from mainland China through the Southbound Stock Connect program.
However, analyst Markus Thielen cautions that Chinese participation might be delayed by evolving regulations in China, taking at least six months. Echoing Markus's sentiment, Bloomberg ETF analyst Eric Balchunas anticipates limited participation from mainland China due to their restrictions on virtual asset purchases. This, he believes, will constrain demand and lead Hong Kong's spot Bitcoin ETFs to attract only "$1 billion within two years," a stark contrast to the roughly $60 billion currently managed by U.S. spot Bitcoin ETFs.
Bitcoin, Ether Prices Stagnant Despite Hong Kong's Update
Bitcoin's price, like most assets, reacts to a complex interplay of factors such as economic conditions, central bank actions, and geopolitical tensions. Recently, two potentially bullish developments emerged: the launch of new ETFs and the long-awaited Bitcoin halving event (concluded last Friday).
However, despite these positive catalysts and Hong Kong's pioneering move with a spot Ether ETF (even beating the U.S.), Bitcoin remained relatively flat over the week, hovering around the $65K mark (as of April 20th) – a far cry from its all-time high near $74,000 last month.
Ether's price also hasn't experienced significant gains. While Hong Kong's ETF approval positions the city as a potential crypto hub, it could also put pressure on the U.S. SEC to revisit Ether ETFs, potentially benefiting the entire crypto industry.
Can Anyone Buy the Hong Kong Bitcoin ETFs?
The short answer is yes. Investors who are keen on participating directly and widely on the Hong Kong Stock Exchange can open a brokerage account with a brokerage firm in their own country that offers a platform for international trading. However, investment restrictions might apply to citizens of some countries (like potentially Mainland China investors, as mentioned by Balchunas). Before investing, thoroughly research fees and potential tax implications to make informed decisions.
Current Crypto Landscape in Asia
The latest update from Hong Kong is certainly significant news; however, it's important to note that Crypto-linked ETFs already exist in Asia, with five funds currently boasting a combined $250 million in assets under management (AUM). These funds are spread across Hong Kong and Australia.
- CSOP Bitcoin Futures ETF (HK:3066)
- Global X 21Shares Bitcoin ETF (EBTC)
- CSOP Ether Futures ETF (HK:3068)
- Samsung Bitcoin Futures Active ETF (HK:3135)
- Global X 21Shares Ethereum ETF (EETH)
CSOP's Bitcoin Futures ETF is the largest Bitcoin fund in Hong Kong, with $120 million in assets under management (AUM). However, as its name suggests, it invests in Bitcoin futures rather than direct holdings of Bitcoin. Similarly, the Samsung (KS:005930) Bitcoin Futures Active ETF and CSOP Ether Futures ETF also invest in futures.
Preceding Hong Kong's move, Global X Australia broke ground in the region by launching the first spot Bitcoin and Ether ETFs in the country back in 2022. These ETFs currently hold asset bases of AU$94 million and AU$18 million for Bitcoin and Ether, respectively.
Management fees for these upcoming products are projected to fall between 1-2%. Existing solutions, like CSOP's offerings, currently charge 2%, while Global X's funds fees sit at 1.25% annually. Samsung's ETF boasts the lowest fee at 0.89%. Competitive fees will be crucial for attracting both retail and institutional investors to these new financial instruments.
Will Hong Kong Spot Bitcoin ETFs Success Spark Asian Crypto Boom?
The success of Hong Kong's spot Crypto ETFs could have a ripple effect, prompting other Asian jurisdictions to follow suit. This domino effect would likely boost overall participation and maturity within the regional Bitcoin market.
However, the landscape of crypto ETFs in Asia paints a picture of diversity and regulatory hurdles. In Taiwan, crypto companies are actively pushing for a spot Bitcoin ETF, but the government remains cautious, carefully evaluating the feasibility of such products.
South Korea faces a similar situation, with government opinions swinging back and forth depending on political tides. While the doors are currently shut on crypto ETFs in Japan, industry advocates are working tirelessly to push for legal changes.
Hong Kong stands out as a beacon of progress in the region, having boldly approved spot Bitcoin and Ether ETFs. This move sparks optimism for the future, but it also highlights the fragmented regulatory environment across Asia.
Some countries are diving headfirst into the world of crypto, while others take a more cautious approach. Nevertheless, all these nations stand at a crossroads, deciding how much to embrace and regulate the burgeoning world of digital assets.