Tech
Hong Kong to launch bitcoin spot ETF next week, highlighting contrast with mainland China’s cryptocurrency ban
Hong Kong will launch its first bitcoin and ether exchange-traded fund (ETF) on April 30, cementing the city’s role as a virtual asset hub in contrast to mainland China’s crackdown on cryptocurrencies.
Hong Kong’s Securities and Futures Commission (SFC) has approved both retail and institutional investors investing directly in bitcoin and ether, the world’s two largest cryptocurrency tokens, making the city the envy of the underground investor community crypto on the mainland where bitcoin trading and mining activities take place. they are prohibited.
The first batch of approved Hong Kong-based ETFs are managed by Chinese fund managers Harvest International and China Asset Management, with a jointly managed product offered by mainland China’s Bosera Asset Management and Hong Kong virtual asset firm HashKey Capital.
Hong Kong cryptocurrency spot ETFs have one big attraction: no taxes
“With the growing adoption of ETFs in institutional asset allocation and retail trading in Hong Kong, we expect strong demand for our offerings,” said Thomas Zhu, head of digital assets and family office business at China Asset Management.
The SFC’s approval of bitcoin and ether spot ETFs makes Hong Kong the first jurisdiction in Asia to approve such products, and comes after the US Securities and Exchange Commission in January approved bitcoin spot ETFs.
According to The Block, a cryptocurrency news and data site, there was more than $200 billion in trading volume for three-month U.S. bitcoin ETFs.
Unlike US bitcoin ETFs which can only be purchased with dollars, Hong Kong allows in-kind creation models, which allow the direct exchange of cryptocurrencies for ETF shares.
“The in-kind subscription and redemption mechanism increases the flexibility and inclusiveness of virtual asset spot ETFs and has a certain arbitrage space, which is favorable not only for crypto-native investors but also for traditional financial investors,” he said. said Jason Jiang, senior researcher at OKG Research.
However, Jiang warned that in-kind creation models will increase investment risks due to the complexity of the process involving trading, custody and conversions of bitcoin and ether ETFs. But she added that “Hong Kong has established a relatively comprehensive regulatory system” capable of addressing the related risks.
The bitcoin logo seen on a cryptocurrency ATM in Hong Kong, on February 29, 2024. Photo: Bloomberg
The SFC’s approval of Ethereum ether spot ETFs has “put Hong Kong ahead of the US and other regions”, giving it “first-mover advantage”, said Tony Tong, co-president of the Hong Kong Blockchain Association .
“I believe this could attract the broader group of mainstream equity investors in Hong Kong and Asia to enter the cryptocurrency investment industry by starting with Bitcoin and Ethereum spot ETFs,” Tong said.
Mainland Chinese investors will likely not be able to participate due to Beijing’s restrictions on cryptocurrency trading. A survey by New York-based blockchain research firm Chainalysis said last month that Chinese cryptocurrency profits totaled $1.15 billion in 2023, ranking fourth behind the United States, United Kingdom and Vietnam.
As of 2022, Hong Kong has already approved ETFs based on crypto-futuresof which three are listed so far: CSOP Bitcoin Futures, CSOP Ether Futures and Samsung Bitcoin Futures.
Hong Kong is also working on a framework for stablecoins, a type of token pegged 1-1 to fiat currency and generally backed by cash reserves and bonds.