Hong Kong Approved Ethereum Spot ETF Faster than the United States, Attracting Wide Attention from Investors. However, it also Triggered Discussion on Policy Continuity, Particularly Focusing on the Development of Bitcoin, Ethereum, and other Virtual Assets.
(Previous Summary:
Hong Kong’s six “Bitcoin and Ethereum Spot ETFs” started trading on April 30th, with Harvest, Huaxia, and Bosera launching a fee war.)
(Background Supplement:
After Hong Kong approved the cryptocurrency ETF, will South Korea, Japan, and Singapore follow suit? What about Taiwan?)
Table of Contents:
The Earliest Batch of Domestic Asset Management Companies
Is Hong Kong the Lifesaver for Ethereum?
1. Adaptability and Forward-looking of Regulatory Environment
2. Strong Market Driving Force
3. Geographical and Strategic Advantages
4. Seizing Pricing Power First
Hong Kong’s Policy a Year Ago
On April 15, 2024, Harvest Global Investments announced that it had obtained the provisional approval from the Hong Kong Securities and Futures Commission (SFC) to launch two digital asset (Bitcoin and Ethereum) spot ETF products.
These products will be provided through the first licensed and protected digital asset platform, OSL Digital Securities Limited, aiming to effectively address the problem of high margin requirements and price premiums caused by shortfalls in Bitcoin’s price accuracy.
On the same day, Huaxia Fund (Hong Kong) also announced that it had obtained the approval from the SFC and planned to issue ETF products investing in Bitcoin and Ethereum spot. These products will be provided through collaboration with OSL Digital Securities Limited and Bank of China International Trustee Limited.
In addition, according to Tencent Finance, the SFC has updated the list of virtual asset management funds on April 10 and is preparing to announce the list of the first batch of Bitcoin spot ETFs in Hong Kong on April 15.
Apart from Harvest Global Investments and Huaxia Fund, the first approved batch also includes Bosera Fund and Wisdom Finance, although the latter two have not appeared in the latest updated list. According to the plan, the SFC will list Bitcoin spot ETF on the Hong Kong Stock Exchange around April 25, at the latest by the end of April.
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 significant player in the global asset management industry.
The company not only has a strong business foundation in the Asian market but has also successfully expanded its presence to international financial centers such as London and New York. As of now, Harvest Global Investments has over $20.7 billion in assets under management.
As the parent company of Harvest Global Investments, Harvest Fund Management Co., Ltd. has become one of the largest fund management companies in China since its establishment in 1999, with assets under management exceeding RMB 1.3 trillion. Its shareholders include China Chengxin Trust Co., Ltd. (40%), China Life Investment Holding Co., Ltd. (30%), and Deutsche Asset Management (Asia) Limited (30%).
As a wholly-owned subsidiary of China Harvest Fund Management Co., Ltd., Huaxia Fund (Hong Kong) has grown into a leading asset management company in the Hong Kong market since its establishment in 2008. Leveraging the strong influence of its parent company in the Chinese market, Huaxia Fund (Hong Kong) focuses on providing diversified investment products to global investors, including long 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 major shareholders of Huaxia Fund (Hong Kong) include CITIC Securities Co., Ltd. (62.2%), Manulife Investment Management (13.9%), and Power Corporation of Canada (13.9%), providing solid support with their international backgrounds and financial strength.
Huaxia Fund is also the first national social security fund manager, the first enterprise annuity fund manager, the first QDII fund manager in the Mainland, the first domestic ETF fund manager, and the first Shanghai-Hong Kong Stock Connect ETF fund manager, making it one of the fund management companies with the widest scope of business.
According to CoinDesk citing a research report from Matrixport, the Bitcoin spot ETF listed in Hong Kong is expected to attract up to $25 billion of mainland Chinese funds through the “southbound” mechanism.
The research points out that although the southbound mechanism allows up to $70 billion of funds to flow into the Hong Kong stock market each year, the actual usage quota is usually lower. This provides a huge potential source of funds for the Bitcoin ETF.
The report further analyzes that with the decline of the RMB against the US dollar and the increasing interest of Chinese investors in diversified investments, Bitcoin ETF products appear particularly attractive. It is expected to attract not only individual investors but also numerous institutional investors seeking hedging opportunities.
In addition to the lively discussion on the background of the two asset management companies, there is also great concern about why Hong Kong approved Ethereum spot ETF earlier than Europe and the United States.
Compared to Bitcoin’s strength in the past year, Ethereum appears to be very weak, with prices not surpassing Bitcoin in terms of gains and not surpassing altcoins afterward. The US SEC has repeatedly delayed the audit results of Ethereum ETF. Kong Jianping, a director of Hong Kong Cyberport, believes that “Hong Kong’s approval of Ethereum ETF is a lifesaver for Ethereum.”
In the research and analysis of the community, the reason why Hong Kong approved Ethereum spot ETF earlier than Europe and the United States is not only attributed to its flexible regulatory environment and open attitude towards financial innovation but also influenced by several key factors:
The Securities and Futures Commission (SFC) of Hong Kong is known for its efficient regulatory framework and rapid response to financial innovation. Compared with the SEC in the United States 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 mainstream markets.
For example, the SFC started researching and testing regulatory frameworks related to cryptocurrency assets ahead of other countries, enabling Hong Kong to quickly adapt to market changes and implement new rules.
Hong Kong’s financial market particularly focuses on meeting investor demands, which is especially prominent among global financial centers. The popularity of cryptocurrency and related financial products among Hong Kong investors has been rapidly increasing, providing the SFC with opportunities to drive innovation in areas that have not been fully explored in other regions globally.
This market driving force has prompted regulatory agencies to optimize approval processes to launch products that meet market and investor expectations more quickly.
As Asia’s financial hub, Hong Kong plays a bridging role in connecting Eastern and Western markets. This geographical advantage gives Hong Kong a unique strategic position in the global financial landscape, attracting a large amount of international capital to participate in its market.
Moreover, Hong Kong maintains close contact with mainland China under the “one country, two systems” policy while enjoying a relatively independent economic and legal system, providing it with a distinctive perspective and experimental ground in global financial innovation.
“Whoever controls the spot ETF flow controls the pricing power.” From the approval of Bitcoin spot ETF, we can see that Wall Street capital is more dominant in controlling the pricing power of Bitcoin.
In the global financial market, gaining control of pricing power is crucial for market influence and competitiveness. By approving Ethereum spot ETF ahead of others, Hong Kong not only provides new investment tools for global investors but also substantially participates in the competition for cryptocurrency pricing power.
However, BlockBeats discovered that most users on Twitter are not optimistic about Hong Kong’s approval of Bitcoin and Ethereum ETFs, believing that it has little impact from a market perspective.
In response, some netizens expressed, “Be more optimistic. This is a process of gradual acceptance of digital currency by a region or country.”
In the past year, Hong Kong has transformed into a more cryptocurrency-friendly policy stance, attracting widespread attention from investors both regionally and internationally. However, this policy change has also sparked discussions on policy continuity, particularly in the development of projects involving Bitcoin and Ethereum.
On September 14th, Vitalik Buterin spoke in Singapore, stating that although Hong Kong has turned towards a cryptocurrency-friendly stance since the end of last year, cryptocurrency projects should consider the stability of its friendly policies when establishing offices in Hong Kong.
In response to this, Hong Kong Legislative Council Member Wu Jiezhuang responded to Vitalik, emphasizing that Hong Kong’s policy formulation undergoes strict procedures and extensive public consultations, ensuring the stability and continuity of policies. He also invited Vitalik to come to Hong Kong to personally understand the actual situation, emphasizing the transparency and public participation in Hong Kong’s policies.
“Hong Kong’s policies are very stable, and laws will not change overnight,” Wu Jiezhuang wrote publicly on social media platforms.
With further policy formulation, the SFC explicitly stated in its Joint Circular on Intermediaries’ Activities in Relation to Virtual Assets and Circular on Approved Funds Investing in Virtual Assets released in December 2023 that Hong Kong is ready to accept applications for approval of virtual asset spot ETFs. This policy further demonstrates Hong Kong’s position as an international financial center, with an open attitude and support for innovative financial products.
These developments indicate that while investors need to assess policy risks in any market, the Hong Kong government has demonstrated a clear commitment and support in the field of virtual assets. This not only enhances Hong Kong’s status in the global fintech field but also provides confidence to international investors and project developers that Hong Kong can provide a stable and supportive environment for innovation.
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