Hong Kong Bitcoin ETF may be listed after the Spring Festival

Hong Kong Bitcoin Spot ETF will be listed as soon as after the Spring Festival

According to Tencent News "First Line" report, last Friday (January 26), Harvest Fund Hong Kong Company submitted an application for a Bitcoin spot exchange-traded fund (ETF) to the Hong Kong Securities and Futures Commission.

This is the first institution in Hong Kong to submit an application for a Bitcoin spot ETF.

The media reported that the Hong Kong Securities and Futures Commission hopes to speed up the approval of the first Hong Kong Bitcoin spot ETF, and plans to list the first Hong Kong spot Bitcoin ETF on the Hong Kong Stock Exchange after the Spring Festival.

The Hong Kong Securities and Futures Commission may follow the US practice of approving several applications at once. So far, apart from Harvest Fund, no other institution has submitted an application. Although institutions including Southern China Asset Management have communicated with the Hong Kong Securities and Futures Commission many times, they have not yet submitted an application.

Some family office investor managers in Hong Kong said that before this, they did not directly participate in the Bitcoin market due to the complexity of investment categories and operations, but they are very interested in subscribing to Hong Kong's spot ETFs.

However, they also said that there may be some gaps between the subscription of Hong Kong spot ETFs and that of the United States. Compared with the spot ETFs in the United States, in addition to accepting fiat currency subscriptions, Hong Kong spot ETFs may also increase the possibility of direct Bitcoin subscriptions.

Not only ETFs, according to Bloomberg, people familiar with the matter said that Hong Kong's push to introduce stablecoin rules as soon as possible this quarter has also attracted the interest of companies including the international department of asset management company Harvest Fund Management. Harvest Global Investments Ltd., fintech expert RD Technologies and crypto exchange-traded fund Venture Smart Financial Holdings Ltd. are discussing planned stablecoin trials with the Hong Kong Monetary Authority, which are known as regulatory sandboxes.

Earlier, according to the Hong Kong Wen Wei Po, the executive director of Victory Securities, a licensed virtual asset broker in Hong Kong, Chen Peiquan, said that the United States' permission for the listing of spot ETFs is seen by the "cryptocurrency circle" as the key to achieving a "connection" between virtual currencies and actual exchanges, which is bound to attract more investors to participate.

Chen Peiquan pointed out that many investors have not dared to invest in virtual currency, mainly because they are not used to the new investment method or are worried about the investment platform. Virtual currency spot ETFs allow investors to invest through channels they are familiar with. For virtual currency spot ETFs issued in Hong Kong, the SFC will require them to use a licensed platform in Hong Kong. The platform itself also purchases insurance, which not only protects investment risks, but also benefits the development of virtual currency platforms and brokerages in Hong Kong.

Asia's First Bitcoin Spot ETF

On January 11, 2024, Hong Kong Legislative Council member Wu Jiezhuang tweeted that the Bitcoin spot ETF approved by the U.S. Securities and Exchange Commission (SEC) in the early hours of the morning was an important development for the virtual asset market, and believed that Hong Kong should also be brave enough to become a "leader" in the field of virtual assets and lead the development of the entire industry through innovative policies. He made two main suggestions:

The SAR government should promote the implementation of spot ETFs as soon as possible: The Hong Kong Securities and Futures Commission has expressed its readiness to accept applications for spot Bitcoin ETFs. At a time when virtual assets are developing rapidly and competition is fierce, Hong Kong should take the lead in implementing relevant policies and products globally, especially in Asia, to consolidate its opportunity to become a global center for virtual assets.

Strengthen popular education on virtual assets: With the increase of global compliance virtual asset products and attention, the SAR government should immediately strengthen popular education. On the one hand, it will enhance the public's awareness of virtual assets, and on the other hand, it will reduce the opportunities for criminals to use virtual assets to commit fraud.

In this regard, Livio Weng, Chief Operating Officer of HashKey Group, revealed in an exclusive interview with Caixin that there are currently about ten fund companies preparing to launch virtual asset spot ETFs in Hong Kong, and seven or eight of them are already in the actual promotion stage.

Previously, the Hong Kong Securities and Futures Commission and the Hong Kong Monetary Authority issued a circular in December 2023, stating that they were ready to accept applications for recognition of virtual asset spot ETFs.

This means that Hong Kong is becoming the first market in Asia to allow the listing of virtual asset spot ETFs.

It can be said that Bitcoin ETF is a fund listed and traded on traditional stock exchanges, which allows investors to participate in Bitcoin investment more conveniently and safely at a lower cost and risk.

There are two main types of Bitcoin ETFs: Bitcoin futures ETFs and Bitcoin spot ETFs. Bitcoin futures ETFs refer to funds that invest in Bitcoin futures contracts, while Bitcoin spot ETFs refer to funds that directly hold Bitcoin.

Globally, the development of Bitcoin ETFs is still in its early stages, and only a few countries and regions have approved the listing of Bitcoin ETFs. Among them, the United States and Hong Kong, as two important financial centers, have recently issued a series of regulatory policies on Bitcoin ETFs, which has attracted widespread attention in the market.

Hong Kong currently allows futures-based cryptocurrency ETFs, and there are currently three listed, namely CSOP Bitcoin Futures, CSOP Ethereum Futures and Samsung Bitcoin Futures.

Their total assets are relatively small, about $50 million. Samsung Asset Management said it would not rule out exploring the possibility of launching a spot ETF.

The United States has set the benchmark, and Hong Kong is following closely behind

The United States is the world's largest financial market and the largest demander of Bitcoin ETFs. However, the U.S. Securities and Exchange Commission (SEC) has always been cautious about Bitcoin ETFs, worried about the sharp fluctuations in Bitcoin prices, the possibility of market manipulation, investor protection and other issues. Since 2013, the SEC has rejected dozens of Bitcoin ETF applications, disappointing the market.

However, on January 10, 2024, the US SEC finally announced the approval of 11 Bitcoin spot ETFs and authorized them to start trading on Thursday (January 11) local time. This is the first time in the history of the US SEC that a Bitcoin spot ETF has been approved. It is also a major breakthrough for Bitcoin ETFs and is considered an important sign of the formalization, legalization and recognition of Bitcoin.

The approval by the US SEC is in fact a rare compromise. The Bitcoin spot ETF was proposed as early as 2013. For 10 years, the current SEC Chairman Gary Gensler and his predecessor Jay Clayton refused to allow the launch of such products, citing the sharp fluctuations in Bitcoin prices, concerns about investor protection, and the possibility of market manipulation.

However, BlackRock unexpectedly filed a related application in June last year. Grayscale Investments won a key lawsuit against the US SEC in August last year. The judge of the Washington, D.C. Circuit Court of Appeals ruled in the ruling that the SEC's decision to approve the Bitcoin futures ETF and reject Grayscale's decision to convert GBTC into a spot Bitcoin ETF was "arbitrary and capricious."

The above case triggered a sharp rise in cryptocurrencies as people speculated that the U.S. Securities and Exchange Commission would eventually be forced to compromise and give the green light to the growing calls for a spot Bitcoin ETF.

Hong Kong is also ready for the Bitcoin spot ETF competition.

The Hong Kong Securities and Futures Commission and the Hong Kong Monetary Authority issued a joint circular on virtual asset-related activities of intermediaries . The circular stated that as the SFC has approved virtual asset futures ETFs and is ready to accept applications for approval of other funds involving virtual assets, including virtual asset spot exchange-traded funds (virtual asset spot ETFs), the two regulatory agencies have updated the relevant policies in response to the latest market developments mentioned above. The update clearly sets out the regulations that should apply to intermediaries when distributing virtual asset-related products, and sets out the standards of conduct that intermediaries should meet when distributing virtual asset funds5 approved by the SFC.

In addition, the Hong Kong Securities and Futures Commission also issued a circular on the SFC-approved fund investment in virtual assets , stipulating that the fund must "directly invest in the same spot virtual asset token that the Hong Kong public can trade on the virtual asset trading platform (VATP) licensed by the SFC". Cryptocurrency transactions conducted by such ETFs should be conducted through cryptocurrency platforms or authorized financial institutions licensed by the SFC. The trustee or custodian of the fund can only entrust its cryptocurrency custody functions to VATPs licensed by the SFC or institutions that meet the cryptocurrency custody standards issued by the HKMA. Spot cryptocurrency ETFs approved by the SFC allow subscription and redemption in kind and in cash.

Final Thoughts

Judging from the current situation, the United States and Hong Kong are the two major markets for Bitcoin ETFs, representing different positions and strategies of the West and the East respectively.

The United States is the world's largest financial market and the largest demander of Bitcoin ETFs, but its regulators have always been cautious and conservative about Bitcoin ETFs. Only recently did they approve 11 Bitcoin spot ETFs for listing, which was a compromise and concession to market pressure.

Hong Kong is the most important financial center in Asia and the largest supplier of Bitcoin ETFs. Its regulatory authorities are relatively open and flexible. It has approved three Bitcoin futures ETFs and is ready to accept applications for Bitcoin spot ETFs, which is a first in Asia.

It can be said that the goal of Hong Kong's Bitcoin ETF is to attract more retail investors and family office investors, enhance the liquidity and credibility of Bitcoin, but it may also increase the volatility and instability of Bitcoin.

In short, the competition between the United States and Hong Kong in Bitcoin ETFs reflects the different perspectives and interests of the East and the West in the field of virtual assets, and also affects the future direction and development of Bitcoin. The launch and development of Bitcoin ETFs is both an opportunity and a challenge for Bitcoin, which requires the joint attention and response of investors and regulators.