What is the significance of the approval of BTC and ETH spot ETFs in Hong Kong for the industry?
Is Hong Kong a lifeline for Ethereum? Or is it vying for the pricing power of Ethereum?Author: Rhythm Little Worker
Hong Kong has taken a step ahead of the United States by approving the Ethereum spot ETF.
On April 15, 2024, Harvest Global Investments announced today that it has received in-principle approval from the Hong Kong Securities and Futures Commission (SFC) to launch two major digital asset (Bitcoin and Ethereum) spot ETF products. These products will be offered through OSL Digital Securities Limited, the first digital asset platform licensed and protected by the Hong Kong SFC, aiming to effectively address the issues of excessive margin requirements and price premiums caused by shortfalls by accurately reflecting the immediate value of Bitcoin.
On the same day, Huaxia Fund (Hong Kong) also announced that it has received approval from the Hong Kong SFC and plans to issue ETF products that invest in Bitcoin and Ethereum spot. These products will provide trading and custody services in collaboration with OSL Digital Securities Limited and Bank of China International UK Trust Limited.
In addition, according to Tencent Finance, the Hong Kong SFC updated the list of virtual asset management funds on April 10 and is preparing to announce the first batch of spot Bitcoin ETFs in Hong Kong on April 15. Besides Harvest Global Investments and Huaxia Fund, the first batch of approvals also includes Bosera Asset Management and Value Partners, although the latter two have not yet appeared on the latest updated list. According to the plan, the Hong Kong SFC will list the spot Bitcoin ETFs on the Hong Kong Stock Exchange around April 25, no later than the end of April.
The Earliest Batch of Asset Management Companies in China
Harvest Global Investments is one of the first Chinese asset management companies to establish branches outside of China. Since its establishment in 2008, it has developed into a company that occupies an important position in the global asset management industry. The company not only has a solid business foundation in the Asian market but has also successfully expanded to international financial centers such as London and New York. As of now, Harvest Global Investments has total assets under management exceeding $20.7 billion.
As the parent company of Harvest Global Investments, Harvest Fund Management has become one of the largest fund management companies in China since its establishment in 1999, managing assets exceeding 1.3 trillion RMB. Its shareholders include China Chengxin Trust Co., Ltd. (40%), Lixin Investment Co., Ltd. (30%), and Deutsche Asset Management (Asia) Limited (30%).
Huaxia Fund (Hong Kong), as a wholly-owned subsidiary of Huaxia Fund Management, has grown into a leading asset management company in the Hong Kong market since its establishment in 2008. Huaxia Fund (Hong Kong) leverages its parent company's strong influence in the Chinese market to focus on providing diversified investment products for global investors, including long-position equity and bond funds, hedge funds, and ETFs.
As of the end of 2023, Huaxia Fund's total assets under management exceeded $266 billion. The main shareholders of Huaxia Fund (Hong Kong) include CITIC Securities (62.2%), Wanxin Investment (13.9%), and Canada’s Power Group (13.9%), whose international backgrounds and financial strength provide solid support for the company. Huaxia Fund is also one of the first national social security fund managers, one of the first corporate annuity fund managers, one of the first domestic QDII fund managers, the first domestic ETF fund manager, and the first domestic Shanghai-Hong Kong Stock Connect ETF fund manager, making it one of the fund management companies with the broadest business scope.
According to a research report by Matrixport cited by CoinDesk, the Bitcoin spot ETFs listed in Hong Kong are expected to attract up to $25 billion in funds from mainland China through the "Southbound Trading" mechanism. The research points out that while the Southbound Trading mechanism allows up to $70 billion in funds to flow into the Hong Kong stock market each year, the actual utilization is usually lower. This provides a huge potential source of funds for Bitcoin ETFs.
The report further analyzes that with the depreciation of the RMB against the USD and the increasing interest of Chinese investors in diversified investments, Bitcoin ETF products appear particularly attractive. It is expected that they will not only attract individual investors but also many institutional investors seeking hedging opportunities.
Is Hong Kong a Lifeline for Ethereum?
In addition to the heated discussion about the backgrounds of the two asset management companies, a question of great concern is why Hong Kong approved the Ethereum spot ETF earlier than Europe and the United States.
Compared to the strong performance of Bitcoin over the past year, Ethereum appears very weak, with its price and growth not matching Bitcoin and lagging behind altcoins. The U.S. SEC has repeatedly delayed the review results for Ethereum ETFs. Kong Jianping, director of Hong Kong Cyberport, believes that "Hong Kong's early approval of the Ethereum ETF is a lifeline for Ethereum."
In community research and analysis, the reasons for Hong Kong's earlier approval of the Ethereum spot ETF are attributed not only to its flexible regulatory environment and open attitude towards financial innovation but also to several key factors:
- Adaptability and Forward-thinking of the Regulatory Environment
The Hong Kong SFC is known for its efficient regulatory framework and quick response to financial innovation. Compared to the U.S. SEC and regulatory agencies in Europe, the SFC is more proactive in exploring how to integrate emerging financial technologies and products, such as cryptocurrency ETFs, into the mainstream market. For example, the SFC began researching and testing regulatory frameworks related to crypto assets earlier than other countries, allowing Hong Kong to quickly adapt to market changes and implement new rules.
- Strong Market Drive
Hong Kong's financial market places particular emphasis on meeting investor needs, which is especially prominent among global financial centers. The popularity of cryptocurrencies and related financial products among Hong Kong investors has rapidly increased, creating opportunities for the SFC to drive innovation in areas that have not been fully explored in other parts of the world. This market drive has prompted regulators to optimize the approval process to launch products that align more closely with market and investor expectations.
- Geographical and Strategic Advantages
As a financial hub in Asia, Hong Kong serves as a bridge connecting Eastern and Western markets. This geographical advantage gives Hong Kong a unique strategic position in the global financial dynamics, enabling it to attract significant international capital to participate in its market. Additionally, under the "one country, two systems" policy, Hong Kong maintains close ties with mainland China while enjoying a relatively independent economic and legal system, providing a unique perspective and experimental ground for global financial innovation.
- Taking the Lead in Pricing Power
"Whoever controls the spot ETF flow controls the pricing power." From the approval of the Bitcoin spot ETF, we can see that Wall Street capital is stronger in controlling Bitcoin's pricing power. In the global financial market, control of pricing power is crucial for market influence and competitiveness. By being the first to approve the Ethereum spot ETF, Hong Kong not only provides global investors with a new investment tool but also substantively participates in the competition for cryptocurrency pricing power.
BlockBeats found that most users on Twitter are not optimistic about Hong Kong's approval of Bitcoin and Ethereum ETFs, believing that it has no effect from a market perspective.
In response, some netizens expressed, "Be optimistic, this is a process of a region and a country gradually accepting digital currencies."
Hong Kong's Policies from a Year Ago
Over the past year, Hong Kong has shifted to a more cryptocurrency-friendly policy stance, attracting widespread attention from investors both regionally and internationally. However, this policy change has also sparked discussions about the sustainability of such policies, especially regarding the development projects of virtual assets like Bitcoin and Ethereum.
On September 14, Vitalik Buterin spoke in Singapore, stating that although Hong Kong has shifted to a cryptocurrency-friendly stance since the end of last year, cryptocurrency projects should consider the stability of this friendly policy when establishing offices in Hong Kong.
In response, Hong Kong Legislative Council member Wu Jiezhuang addressed Vitalik's concerns. Wu emphasized that Hong Kong's policy-making process involves strict procedures and extensive public consultations, ensuring the stability and continuity of policies. He also invited Vitalik to visit Hong Kong to understand the actual situation, highlighting the transparency and public participation in Hong Kong's policies.
"Hong Kong's policies are very stable, and the laws will not change overnight," Wu wrote publicly on social media.
With further policy development, the Hong Kong SFC clearly stated in the "Joint Circular on Virtual Asset-related Activities of Intermediaries" and the "Circular on SFC-recognized Funds Investing in Virtual Assets" released in December 2023 that Hong Kong is ready to accept applications for the recognition of virtual asset spot ETFs. This policy further demonstrates Hong Kong's open attitude and support for innovative financial products as an international financial center.
These developments indicate that while investors need to assess policy risks in any market, the Hong Kong government has shown a clear commitment and support in the field of virtual assets. This not only enhances Hong Kong's position in the global fintech arena but also provides confidence to international investors and project developers that Hong Kong can offer a stable and supportive environment for innovation.
Related Reading: "Hong Kong Announces Opening of Bitcoin Spot ETF, Key Points Overview"
As for whether Hong Kong can truly compete for more pricing power in Ethereum and whether it can bring more liquidity funds to the crypto market, we will need to observe for a while longer. However, it is certain that Hong Kong's approval of Bitcoin spot ETFs and Ethereum spot ETFs is something we should view optimistically.
