Hong Kong greenlights first Bitcoin and Ether ETFs

Hong Kong has given the green light to applications for spot Bitcoin (BTC) and Ethereum (ETH) ETFs (Exchange Traded Funds). In 2024, the region became the second to take this step, following the SEC’s groundbreaking approval of 11 spot BTC ETFs in the US. 

Despite approving 11 spot Bitcoin ETFs, the US has not yet given the go-ahead for an Ethereum ETF. Some analysts believe that there is a possibility of a spot ETH ETF being approved in the US later this year.

Hong Kong lives up to its crypto hub intention

In a significant development, Hong Kong has joined the growing list of countries that have given their approval for spot exchange-traded funds (ETF) for Bitcoin and Ether. Local regulators have granted approvals to at least three local issuers, marking a positive step forward in the crypto market.

On April 15, Reuters reported that the Hong Kong Securities and Futures Commission (SFC) had given conditional approval to its first spot BTC and ETH ETFs.

Several offshore Chinese asset managers, including the Hong Kong units of Harvest Fund Management, Bosera Asset Management, and China Asset Management (ChinaAMC), are preparing to launch spot Bitcoin and Ether ETFs in the near future.

Bosera is set to introduce its spot crypto ETFs in partnership with HashKey Capital, a Hong Kong-based company. OSL Digital Securities, a licensed digital asset platform in Hong Kong, has been chosen as the sub-custodian for ChinaAMC and Harvest.

According to reports, the Hong Kong regulator has given its approval for the launch of spot Bitcoin and Ether ETFs. These ETFs will be in-kind, allowing for the issuance of new ETF shares using BTC and ETH.

Conditions for the ETFs listing

According to the SFC, the agency grants a conditional authorization letter to an ETF application if it meets the necessary requirements, but with certain conditions attached. Applicants can seek listing approval from Hong Kong Exchanges and Clearing Ltd., according to the SFC.

OSL Digital Securities Ltd. has announced that it will offer custodial services for Bitcoin and Ether products from the China Asset Management unit and Harvest.

The latest developments have given the crypto market a significant boost. Bitcoin experienced a notable increase of 4.3%, while Ether saw a more significant rise of 6.5%. The tokens were valued at $66,232 and $3,253 respectively as of the time of writing. 

On Monday, HashKey Capital and Bosera announced the introduction of spot-ETFs in Hong Kong. These ETFs will feature an in-kind subscription and redemption mechanism, allowing for the exchange of underlying assets for ETF units and vice versa. In contrast, the US funds operate on a cash redemption model.

Spot-crypto ETFs gained significant attention when Bitcoin funds from companies like BlackRock Inc. and Fidelity Investments were introduced in the US in January. The portfolios have seen a significant increase in investments, resulting in a net inflow of $12.5 billion so far. 

This strong demand has contributed to the largest digital asset reaching a record high of $73,798 in mid-March. The approval of pending applications to start ETFs that directly hold second-ranked token Ether in the US remains uncertain.

One major uncertainty revolves around the anticipated demand for the city’s ETFs. Hong Kong has already approved the listing of three futures-based crypto ETFs: CSOP Bitcoin Futures, CSOP Ether Futures, and Samsung Bitcoin Futures. Their combined assets amount to approximately $170 million, which is significantly lower compared to similar offerings in the US.

In addition to ETFs, Hong Kong is considering a number of applications to increase the number of licensed digital-asset exchanges. They are also developing a framework for stablecoins, which are commonly tied to fiat currency on a 1-1 basis and typically supported by cash and bond reserves.