Hong Kong, which has been striving to become a digital asset hub, has granted conditional approvals for asset managers to launch spot-Bitcoin and Ether exchange-traded funds, signaling a significant development for both tokens and the wider crypto market. Harvest Global Investments Ltd., as well as a partnership between HashKey Capital Ltd. and Bosera Asset Management (International) Co., have announced the initial approvals for these ETFs. This move comes after Hong Kong implemented a dedicated regulatory regime last year in an effort to enhance its reputation as a modern financial hub following a crackdown on dissent. The Securities & Futures Commission of Hong Kong issued conditional authorization letters to these asset managers for the provision of virtual-asset management services, with the requirement of meeting various conditions. Once the requirements are generally satisfied, the asset managers can then apply to Hong Kong Exchanges and Clearing Ltd. for listing approval.
OSL Digital Securities Ltd. will provide custodial services for Bitcoin and Ether products from the China Asset Management unit and Harvest. The crypto market reacted positively to this news, with Bitcoin and Ether prices rising by 4.3% and 6.5% respectively in Hong Kong trading hours. Spot-crypto ETFs have gained attention following the successful launch of Bitcoin funds by companies like BlackRock Inc. and Fidelity Investments in the US earlier this year, attracting a substantial net inflow of $12.5 billion. It remains to be seen if the US will approve ETFs holding Ether, the second-largest cryptocurrency.
The Hong Kong spot-ETFs will feature an in-kind subscription and redemption mechanism, unlike the cash redemption model used in the US. This approach could potentially make the Hong Kong ETFs more appealing, according to Justin d’Anethan, head of business development for APAC at Keyrock. However, the level of demand for these ETFs in Hong Kong is uncertain. Currently, the city permits futures-based crypto ETFs, with three listed so far having combined assets of around $170 million, significantly less than similar offerings in the US.
In addition to ETFs, Hong Kong is considering applications to expand its licensed digital-asset exchanges and is working on a framework for stablecoins, which are digital assets pegged 1-1 to fiat currencies and typically backed by reserves of cash and bonds. Hong Kong’s efforts to become a digital asset hub are part of a broader trend among global financial centers, such as Singapore and Dubai, aiming to accommodate the growing interest in cryptocurrencies and blockchain technologies.
