Hong Kong’s crypto ETFs off-limits for mainland China investors

Hong Kong is all set to roll out its first spot Bitcoin and Ethereum ETFs, but here’s the thing. If you’re investing from mainland ChiChina and Russia almost completely rid of US dollar in mutual tradena, you’re out of luck. Despite the close financial ties between Hong Kong and the mainland, these new shiny investment vehicles are strictly for those on the island.

The Details Straight From The Analyst’s Mouth

Jack Wang, a Bloomberg data analyst, laid it all out during a webinar on April 24. He confirmed that even though the ETFs are launching in Hong Kong, mainland Chinese can’t touch them. This is backed up by a serious rule from the Chinese State Council back in September 2021.

They made it clear that financial institutions are banned from handling any crypto-related transactions. Wang even shared a personal anecdote about trying to set up a trade for a futures-based crypto ETF in Hong Kong. Spoiler alert? The brokers shut him down immediately.

So, what’s the big deal about these ETFs, and why can’t investors from the mainland get in on the action? Wang was pretty blunt about it, saying that there’s no chance this will open up crypto markets to Chinese investors anytime soon. He even doubled down, stating it’s “100% not going to happen,” at least for now.

Thomas Zhu, who’s the head honcho for cryptocurrencies at China Asset Management in Hong Kong, chimed in with his two cents. According to him, any chance for mainland investors to get a piece of the crypto ETF action hinges on potential regulatory changes down the road. But for now, they’re just spectators.

Big Picture: Why This Matters

Let’s talk size and scale because the figures involved are nothing short of staggering. James Seyffart, another Bloomberg analyst, points out that while Hong Kong is stepping into the crypto ETF game, they’re still small fish compared to the U.S. Over in the States, the Bitcoin ETF market is a colossal $9 trillion industry. Hong Kong’s entire ETF market? Just $50 billion. And China’s got about $325 billion in ETFs cooking. We’re talking leagues apart in terms of financial muscle.

On April 30, the Securities and Futures Commission (SFC) of Hong Kong gave the green light to these Bitcoin and Ethereum ETFs, marking a significant moment for cryptocurrency adoption in the region. What’s cool about Hong Kong’s approach is the use of an in-kind creation model for these ETFs. This method allows the creation of new ETF shares using actual Bitcoin and Ethereum, which might just pump up their assets and trading volume.

Thomas Zhu from China AMC really digs this model because it lets coin holders convert their stash into regulated ETFs, managed by pros and under the watchful eyes of regulated custodians. He’s expecting a solid demand from both institutional and retail investors, which could make things quite lively in the Hong Kong ETF scene.

And let’s not forget, this move by Hong Kong could stir up some healthy competition in the ETF market, potentially leading to lower fees and better products for investors.