Hong Kong has become the second region to approve applications for spot Bitcoin (BTC) and Ethereum (ETH) ETFs, following the groundbreaking approval of 11 spot BTC ETFs by the SEC in the US. While the US has approved BTC ETFs, it has yet to give the go-ahead for an Ethereum ETF, although there is speculation that it may happen later this year.
This development aligns with Hong Kong’s goal of becoming a crypto hub. The Hong Kong Securities and Futures Commission (SFC) has granted conditional approval to at least three local issuers for spot BTC and ETH ETFs, signaling a positive step forward for the crypto market.
Several offshore Chinese asset managers, including the Hong Kong branches of Harvest Fund Management, Bosera Asset Management, and China Asset Management (ChinaAMC), are preparing to launch spot Bitcoin and Ethereum ETFs in the near future. Bosera will partner with Hong Kong-based company HashKey Capital, while ChinaAMC and Harvest have chosen OSL Digital Securities, a licensed digital asset platform in Hong Kong, as their sub-custodian.
The SFC grants conditional authorization letters to ETF applications that meet the necessary requirements but with certain conditions attached. Applicants can then seek listing approval from Hong Kong Exchanges and Clearing Ltd. OSL Digital Securities Ltd. has announced that it will offer custodial services for Bitcoin and Ethereum products from the China Asset Management unit and Harvest.
This development has significantly boosted the crypto market, with Bitcoin experiencing a 4.3% increase and Ethereum seeing a more substantial rise of 6.5%. At the time of writing, Bitcoin was valued at $66,232, and Ethereum was valued at $3,253.
HashKey Capital and Bosera have announced the introduction of spot ETFs in Hong Kong, featuring an in-kind subscription and redemption mechanism. This allows for the exchange of underlying assets for ETF units and vice versa. In contrast, US funds operate on a cash redemption model.
The introduction of spot crypto ETFs gained attention when Bitcoin funds from companies like BlackRock Inc. and Fidelity Investments were launched in the US in January. These portfolios have seen significant investments, resulting in a net inflow of $12.5 billion so far. However, the approval of pending applications for ETFs that hold Ethereum, the second-ranked token, directly in the US remains uncertain.
One uncertainty surrounding Hong Kong’s ETFs is the anticipated demand. The city has already approved the listing of three futures-based crypto ETFs, but their combined assets amount to approximately $170 million, significantly lower than similar offerings in the US.
In addition to ETFs, Hong Kong is also considering applications to increase the number of licensed digital asset exchanges and developing a framework for stablecoins, which are commonly tied to fiat currency on a 1-1 basis and supported by cash and bond reserves.
