Why is Hong Kong’s launch of spot Bitcoin and Ethereum ETFs so important?

After the United States approved a spot BTC ETF, Hong Kong is expected to follow suit. The Hong Kong Securities and Futures Commission (SFC) began reviewing the first spot Bitcoin ETF application on January 26, 2024. The application was submitted by Harvest Hong Kong, one of China's largest fund management companies.

According to Tencent News, regulatory agencies are actively working to speed up the approval process of domestic ETFs and will launch the first Hong Kong spot Bitcoin ETF after the Lunar New Year on February 10.

Hong Kong regulators may follow the lead of the U.S. SEC and approve multiple spot ETFs to ensure a level playing field. Several regional financial institutions have expressed interest in launching a spot BTC ETF in 2024.

On April 10th, the Hong Kong Securities and Futures Commission updated its list of fund companies managing virtual assets on its official website, adding Harvest International Asset Management Company and China Asset Management (Hong Kong) Limited. Both Harvest International and China Asset Management are among the first batch of public funds in Hong Kong to enter the list of fund companies managing virtual assets. According to publicly available information, currently, there are only two licensed virtual asset exchanges in Hong Kong, namely OSL and HashKey.

On April 12th, Hong Kong's Bitcoin spot ETFs are expected to begin trading by the end of April, and Ethereum spot ETFs may begin trading as early as May. The first batch of institutions approved for Bitcoin spot ETFs in Hong Kong will consist of three to four companies, which will be under the custody of HashKey Exchange and OSL.

On April 15th, China Asset Management (Hong Kong) was approved by the Hong Kong Securities and Futures Commission to offer virtual asset management services to investors. It now plans to issue ETF products that can invest in Bitcoin and Ethereum spot.

China Asset Management (Hong Kong) has conducted research and deployment in collaboration with its partners, OSL Digital Securities Limited and BOCI-Prudential Trustee Limited, UK. Additionally, OSL is the exclusive trading and custody partner for Bitcoin and Ethereum spot ETFs launched by China Asset Management in Hong Kong.

Meanwhile, Bosera International, in partnership with HashKey Capital, plans to issue spot Bitcoin and Ethereum ETFs. Bosera International Limited has officially been approved by the Hong Kong Securities and Futures Commission (SFC) to expand its business scope from its existing Type 9 license (providing asset management) to include asset management services related to virtual assets. At the same time, HashKey Capital has recently been approved by the SFC to upgrade its Type 9 license (capable of investing and managing 100% virtual assets) to offer virtual asset fund products to retail investors.

Bosera International and HashKey Capital will combine their respective advantages to collaborate in multiple fields, including virtual asset spot ETFs, blockchain technology, and financial technology, to jointly promote the issuance of Bitcoin and Ethereum spot ETFs.

Harvest International, China Asset Management, and Bosera Fund have announced that their Bitcoin and Ethereum spot ETFs have been approved by the Hong Kong SFC. Harvest International and China Asset Management will collaborate with OSL for the custody and trading of virtual assets, while Bosera Fund will collaborate with HashKey.

The approval of Bitcoin (BTC) and Ethereum (ETH) spot ETFs in Hong Kong is significant for the industry:

1. Enhanced market access and liquidity: By approving Bitcoin and Ethereum spot ETFs, Hong Kong provides a safe and compliant way for a broader group of investors (including traditional investors hesitant about directly holding digital assets) to enter the cryptocurrency market. This new investment tool is expected to increase market liquidity and attract more capital inflows.
2. Promotion of regulatory innovation and global competitiveness: Hong Kong's regulators adapt and integrate emerging financial technologies through flexible and forward-looking regulatory frameworks, demonstrating Hong Kong's leadership in global financial innovation. This not only enhances Hong Kong's appeal as a global financial hub but also encourages other countries and regions to consider how to promote financial product innovation while protecting investor interests.
3. Connecting Eastern and Western financial markets: Due to Hong Kong's strategic geographical location in Asia and its role as an international financial center, it effectively bridges the markets of the East and West, providing a crucial link for global capital flows and the acceptance of cryptocurrencies.
4. Accelerating mainstream acceptance of cryptocurrencies: The approval of spot ETFs marks an important step in cryptocurrencies being accepted and adopted by the mainstream financial system. This increased acceptance helps boost public trust and interest in cryptocurrencies and may encourage more businesses and financial institutions to explore the potential uses of cryptocurrencies.
5. Enhancing pricing power and market influence: By controlling significant cryptocurrency ETF products, Hong Kong can play a more important role in the global competition for cryptocurrency pricing rights. This not only enhances the competitiveness of the Hong Kong market but could also impact the price development and stability of global cryptocurrency markets.

Will Hong Kong become the world's second-largest Bitcoin spot ETF market?

1. Market Size and Potential: Although Hong Kong's ETF market is only one percent of the United States, it is still considered by many industry insiders to have tremendous potential. The approval of Bitcoin and Ethereum spot ETFs could attract a significant amount of capital, especially from the traditional financial market to the cryptocurrency market.
2. Policy and Regulatory Advantages: Compared to other countries, Hong Kong's regulatory framework is more crypto-friendly. Hong Kong has not only approved Bitcoin spot ETFs but also Ethereum spot ETFs, paving the way for ETFs of other virtual assets.
3. Potential Influx of Southbound Capital: The influx of southbound capital is a key factor in enhancing the attractiveness of Hong Kong’s Bitcoin spot ETFs. Allowing investment from mainland China would significantly increase capital inflows.
4. Geographic and Strategic Position: As a financial hub in Asia, Hong Kong's strategic location enables it to attract capital from neighboring countries such as Japan and South Korea.
5. Advantages of Physical Delivery: Unlike the cash settlement in the United States, Hong Kong’s Bitcoin spot ETFs allow for physical delivery, which increases liquidity and arbitrage opportunities, particularly attractive to crypto-native investors.
6. Collaboration and Initial Response: Collaborations with major institutions like Harvest International and ChinaAMC indicate a strong market demand for these products. Investor interest in purchasing Bitcoin spot ETFs is expected to continue to grow.
7. Trading Costs and Customer Protection: Although crypto exchanges in Hong Kong face high compliance costs, strategic collaborations to reduce fees and protect investor interests could enhance market attractiveness.

Considering these factors, Hong Kong has the potential to become the world's second-largest Bitcoin spot ETF market, depending on market acceptance, global economic conditions, and the development of relevant regulatory policies.

Release of Virtual Asset Spot ETFs in Hong Kong on April 29 The Hong Kong Securities and Futures Commission has recently approved six virtual asset spot ETFs, which were launched on April 29 and officially listed on the Hong Kong Stock Exchange on April 30.

These six products, from ChinaAMC (Hong Kong), Bosera International, and Harvest International, include both Bitcoin and Ethereum spot ETFs. These products aim to closely track the performance of Bitcoin/Ethereum (measured by the CME Bitcoin Index or Ethereum Index (APAC closing price)) before fees and expenses.

As virtual assets, Bitcoin and Ethereum are fully invested in by these ETFs without engaging in other types of investments, financial derivatives, or transactions such as securities lending, repurchase agreements, or reverse repurchases, and do not employ any form of leverage, though they may retain a small amount of cash for operating expenses or to meet redemption needs.

Bitcoin was the first digital currency to use blockchain technology for online payment transactions, while Ethereum allows smart contracts to run on decentralized applications based on blockchain technology.

These products also vary slightly in terms of fees, issuance, trading, and platforms. For example, the management fee for Harvest’s Bitcoin and Ethereum spot ETFs is 0.3% of net asset value per year, waived for the first six months from the listing date. Bosera's Bitcoin and Ethereum spot ETFs charge a management fee of 0.6% per year, with fees temporarily waived from April 30, 2024. ChinaAMC’s Bitcoin and Ethereum spot ETFs charge a management fee of 0.99% per year.

Trading Volume on the First Day of Hong Kong Virtual Asset ETFs Reached 87.58 Million Hong Kong Dollars On the first trading day, April 30, Bitcoin spot ETFs from ChinaAMC, Bosera HashKey, and Harvest International rose over 3% initially but later narrowed to about 1.5%. The three Ethereum ETFs were up over 1% in the morning but fell into negative territory later in the afternoon. Within the first two and a half hours of trading, the six funds in Hong Kong had a combined transaction volume of nearly 50 million Hong Kong dollars.

In the morning, Bitcoin ETF trading volume was close to 35 million Hong Kong dollars (about 4.5 million USD), with ChinaAMC’s ETF having the highest trading volume of about 23 million Hong Kong dollars.

Ultimately, the total trading volume of the six virtual asset ETFs on their debut day was 87.58 million Hong Kong dollars (about 12 million USD), with the ChinaAMC Bitcoin ETF (3042 HK) trading 37.16 million Hong Kong dollars and the ChinaAMC Ethereum ETF (3046 HK) trading 12.66 million Hong Kong dollars.

Bosera HashKey Bitcoin ETF (3008 HK) traded 12.44 million Hong Kong dollars, and the Bosera HashKey Ethereum ETF (3009 HK) traded 2.48 million Hong Kong dollars.

Harvest Bitcoin Spot ETF (3439 HK) traded 17.89 million Hong Kong dollars, and Harvest Ethereum Spot ETF (3179 HK) traded 4.95 million Hong Kong dollars.

For comparison, on January 10, the trading volume of the U.S. Bitcoin ETF on its first day was 4.6 billion USD, 383 times that of Hong Kong's first-day trading volume.