Hong Kong has approved the launch of exchange-traded funds (ETF) that invest directly in Bitcoin and Ether, the world’s two largest cryptocurrency tokens, as the city looks to secure a leading position in the volatile virtual assets sector.
Mainland fund house Bosera Asset Management’s overseas arm and Hong Kong virtual assets firm HashKey Capital have received “conditional approval” from the Securities and Futures Commission (SFC) to jointly launch spot crypto ETFs, the companies said on Monday Announcements published online.
The SFC has not made an announcement about the ETFs as none have been officially approved yet. The conditional approval allows applicants to advance preparations for offering the funds, such as submitting an application to Hong Kong Exchanges and Clearing (HKEX) to offer them on the local stock exchange.
“The SFC issues a conditional letter of approval to an ETF application if it generally meets our requirements, subject to various conditions, including fee payments, submission of documents and approval of listing on the HKEX,” the SFC said in a statement to the Post , without clarifying the status of all spot crypto ETF applications.
Spot crypto ETFs are considered a boon for investors who want to invest in such assets without having to worry about setting up their own blockchain wallets or other technical details that can pose a hurdle. ETFs can also be integrated into bond funds, making them more attractive to mainstream investors.
Since the US began allowing spot Bitcoin ETFs this year, they have recorded more than $200 billion in trading volume, according to crypto news and data portal The Block.
The price of Bitcoin has risen sharply since the end of last year, especially after the US ETF approval in January. However, the price has fallen by around 8 percent to around $66,700 in the past week. Following the spot ETF approval, SEC Chairman Gary Gensler warned that Bitcoin remains a “speculative, volatile asset.”
The SEC has repeatedly delayed ruling on ETFs that invest directly in Ether, the native token of the Ethereum blockchain. The review is expected to be completed by the end of May.
That makes the approval in Hong Kong, which typically lags behind the United States in approving such financial instruments, appear more ambitious as the city seeks to transform itself into a hub for virtual assets.
Although the Hong Kong market is relatively small, industry insiders say local spot crypto ETFs could be globally competitive as they allow both cash and in-kind subscriptions – that is, converting Bitcoin or Ether into their ETF equivalents. In the USA, the products can only be purchased with dollars.
The in-kind benefit agreement offers benefits such as lower transaction costs and greater operational efficiency, said Andrew Fei, partner at King & Wood Mallesons in Hong Kong.
“The approval of the first spot Bitcoin and spot Ether ETFs in Asia marks an important milestone in Hong Kong’s ambition to become a global hub for digital assets,” Fei said. “The strong crypto investor base in Asia, combined with the in-kind redemption feature and support for Hong Kong dollar trading, give these Hong Kong ETFs a real competitive advantage.”
Additional reporting by Matt Haldane.