SHANGHAI (Reuters) — Hong Kong conditionally approved its first spot bitcoin and ether exchange traded funds (ETFs) on Monday, money managers said, paving the way for the city to become Asia’s first to accept the cryptocurrencies as a mainstream investment tool.
At least three offshore Chinese asset managers will launch the virtual asset spot ETFs soon.
The Hong Kong units of Harvest Fund Management and Bosera Asset Management said in separate statements they had received conditional approvals from the Hong Kong Securities and Futures Commission (SFC) to launch the ETFs.
Meanwhile, the Hong Kong unit of China Asset Management – ChinaAMC (HK), said it had received regulatory approval on Monday to provide virtual asset management services, and the firm was developing spot ETFs of bitcoin and ether.
Replying to Reuters’ questions, the SFC said it issues a conditional authorization letter to an ETF application if it generally satisfies its requirements, subject to various conditions, including fee payments, filing of documents and the Hong Kong Stock Exchange’s (HKEX) listing approval.
The regulator didn’t comment on the details of virtual asset spot ETFs.
The step comes just three months after the U.S. launched its first ETFs to track spot bitcoin. Those ETFs have already drawn roughly $12 billion in net inflows.
While cryptocurrency is banned in mainland China, Hong Kong has been promoting the city as a global digital asset hub, as part of a drive to boost its attraction as a financial center.
“The introduction of the virtual asset spot ETFs not only provides investors with new asset allocation opportunities but also reinforces Hong Kong’s status as an international financial centre and a hub for virtual assets,” Bosera Asset Management (International) said in its statement.
Bosera will launch its product in partnership with Hong Kong-based HashKey Capital.
Virtual asset spot ETFs in Hong Kong will introduce an “in-kind” subscription mechanism that allows investors to buy into ETF shares using bitcoin or ether directly, Bosera added.
Chinese financial institutions, faced with faltering Chinese equity markets in recent years, have been keen to participate in crypto asset development in Hong Kong.
The conditional approval will help Harvest Global’s goal of promoting industry innovation and meet diverse demand among investors, Harvest Global Investments CEO Han Tongli said.
Bitcoin has gained more than 50% this year and hit an all-time high of $73,803 in March. It was trading at around $66,000 on Monday.
Chinese fund managers apply to launch Hong Kong’s first bitcoin ETFs
Hong Kong is trying to become a regional center for virtual assets through regulated platforms as its traditional financial industry, including its market for initial public offerings, takes a beating from China’s economic slowdown and geopolitical tensions with the U.S.
Previously, the city’s Securities and Futures Commission (SFC) allowed managers to sell ETFs linked to crypto futures contracts, which are considered less volatile than instruments that invest in the virtual coins directly. Authorities in December 2023 said they would further open up, allowing retail investors to buy funds that invest 100% in some of the virtual assets. This triggered the first wave of applications by the Chinese fund managers.
Crypto trading is banned on the mainland, but companies with mainland links are active in the burgeoning sector in Hong Kong.
Bosera Asset Management (International), a top Chinese fund manager’s Hong Kong arm, has applied to launch a bitcoin ETF in the city, a company spokesperson confirmed to Nikkei Asia. If approved, it will co-manage the product with HashKey Capital, a sister company of HashKey Exchange, one of two licensed crypto exchange platforms for Hong Kong retail investors.
Two more fund managers with Chinese shareholders have applied to launch a similar product, according to two sources who declined to be named. The managers include Harvest Global Investments, another Chinese company’s Hong Kong unit, and Value Partners, which is partly owned by Chinese brokerage GF Holdings (Hong Kong).
Harvest and Value Partners did not respond to requests for comment.
A Chinese online news outlet under tech conglomerate Tencent first reported the applications on Wednesday. It said that China Asset Management (Hong Kong) had also applied to launch a bitcoin ETF. A spokesperson for the Chinese fund manager declined to comment.
The Tencent outlet said the first approvals could come as early as Monday. Hong Kong’s SFC also declined to comment on the plans.
The U.S. Securities and Exchange Commission approved 11 bitcoin ETFs in January, some of which are run by top global asset managers such as BlackRock and Fidelity.
Demand among Hong Kong clients for bitcoin-based assets has been rising in the past few months, as the value of the currency has risen since late last year, Livio Weng, CEO of HashKey Exchange, told Nikkei Asia in an interview on Monday. Bitcoin’s price has surged more than 60% year-to-date, to over $70,000.
The Hong Kong-licensed HashKey Exchange has garnered over 170,000 customers and generated trading volume equivalent to over 370 billion Hong Kong dollars ($47.2 billion) since its launch last August, Weng said.
CSOP Asset Management, which manages a bitcoin futures ETF in Hong Kong, saw assets invested in the product swell to $120.7 million, with about half of that coming from net investments and the rest due to the bitcoin price surge, the company said. The majority of the inflow came from high-net-worth individuals and local securities brokerages, a source said.
Louie Lee, managing director of virtual asset advisory Prosynergy Consulting, said Hong Kong’s push to encourage crypto asset trading is “a step in the right direction for Web3,” referring to a catchall for internet services based on the blockchain technology used in cryptocurrency transactions. “But we need more development in terms of products.”
FAQs :
1.What are virtual asset spot ETFs and why are they significant in Hong Kong?
- Virtual asset spot ETFs are exchange-traded funds tied to cryptocurrencies like bitcoin and ether, recently conditionally approved in Hong Kong.
- These ETFs mark a significant milestone, potentially making Hong Kong Asia’s first to accept cryptocurrencies as a mainstream investment tool.
2. Who has received conditional approvals to launch virtual asset spot ETFs in Hong Kong?
- At least three offshore Chinese asset managers, including Harvest Fund Management, Bosera Asset Management, and China Asset Management (ChinaAMC), have received conditional approvals from the Hong Kong Securities and Futures Commission (SFC).
3. What is the significance of the in-kind subscription mechanism in virtual asset spot ETFs?
- Virtual asset spot ETFs in Hong Kong will introduce an “in-kind” subscription mechanism, allowing investors to buy into ETF shares using bitcoin or ether directly, thereby enhancing accessibility and flexibility for investors.
4. How does this development align with Hong Kong’s aspirations as a global financial hub?
- Hong Kong’s regulatory approval of virtual asset spot ETFs aligns with its ambition to become a regional center for virtual assets, amidst challenges in its traditional financial industry.
5. What spurred the applications for bitcoin ETFs in Hong Kong?
- Hong Kong’s Securities and Futures Commission (SFC) previously allowed managers to sell ETFs linked to crypto futures contracts, and further opening up in December 2023 triggered a wave of applications by Chinese fund managers.
6. How has demand for bitcoin-based assets evolved in Hong Kong?
- Demand among Hong Kong clients for bitcoin-based assets has been rising, as evidenced by the surge in bitcoin’s value and the growth of platforms like HashKey Exchange.
7. What are the implications of these developments for the broader crypto industry?
- Hong Kong’s push to encourage crypto asset trading, exemplified by the approval of virtual asset spot ETFs, signifies a step forward for Web3 technology, although further product development is needed to fully capitalize on this trend.
