The Securities and Futures Commission recognized the first batch of crypto asset spot ETFs in Hong Kong to be approved

Following the passage of the U.S. Bitcoin Spot ETF, Hong Kong also won another victory.

On April 15, China Asset Management (Hong Kong), Boshi Fund (International) Co., Ltd., and Harvest Investment announced that they had obtained conditional approval from the Hong Kong Securities and Futures Commission (SFC) to issue Bitcoin and Ethereum spot ETFs. , which also marks Hong Kong as the second jurisdiction in the world to pass such products after the United States.

Compared with the United States, which has the most influence in the world and remains cautious due to various considerations, Hong Kong’s virtual asset spot ETF is obviously more open. It not only included the Ethereum spot ETF that is still under discussion at one time, but also obtained First-mover advantage, the ETF mechanism design is also more inclusive than the United States.

But in terms of cryptographic influence, Hong Kong actually does not have an advantage under the siege of the Western world. Even in the past year, despite frequent policies, there has been little discussion and a sense of stagnation. This time Will the listing of ETFs change this pattern?

No matter what, with the listing of ETF, Hong Kong’s encryption wheel has set sail again.

On April 15, China Asset Management (Hong Kong), Boshi Funds (International) Co., Ltd., and Harvest Investment successively issued announcements on their public accounts, announcing that they had received in-principle approval from the Hong Kong Securities Regulatory Commission to issue Bitcoin and Ethereum spot ETFs. . Among them, China Asset Management (Hong Kong) cooperates with OSL, and the custodian is BOC International Prudential Trust Co., Ltd. Harvest Investment also selected OSL as the first virtual asset trading platform and custody partner, while Boshi International jointly issued and managed it with HashKey Capital.

Looking at the timeline of this application, it is not an accident that the ETF was approved. As early as December last year, the market was in a critical period of swing for ETF applications. The Hong Kong Securities Regulatory Commission issued the "Relevant Securities Regulatory Commission Authorized Funds to Invest in Virtual Assets" "Circular", proposing preparations to accept applications for virtual asset spot ETFs. Since then, more than 20 relevant institutions have begun to enter the spot ETF. Harvest International, Boshi, China Asset Management, and Victory Securities are typical representatives. Taking Harvest International, which was the first to apply, as an example, it announced on January 26 that it had become a Bitcoin ETF. Applicants for currency spot ETF.

On April 10, Reuters reported that a Bitcoin spot ETF may be launched in Hong Kong this month, and the first batch of lists may be announced as soon as next week. At the same time, Tencent Finance's "First Line" also reported that the Hong Kong Securities Regulatory Commission plans to announce the list of the first four Bitcoin spot ETFs in Hong Kong on April 15, including Harvest International, China Asset Management, Boshi Fund and Value Partners In finance, the entire Bitcoin spot ETF project had detailed communication and planning with the Hong Kong Stock Exchange in the early stages, and it is expected to be completed in about 10 days. The China Securities Regulatory Commission originally planned to list a Bitcoin spot ETF in Hong Kong around April 25 and no later than the end of April.

According to the official website of the Hong Kong Securities Regulatory Commission, there are currently 18 institutions on the list of Hong Kong virtual asset management funds. Among them, China Asset Management and Harvest International have obtained the No. 9 virtual asset license approved by the Securities Regulatory Commission and can manage 100% of their investments in A portfolio of virtual assets can be issued independently. Boshi Funds and Value Partners currently do not have independent licensed persons in charge, so they need to seek cooperation with licensed exchanges or other institutions for issuance.

In the long run, this application is of far-reaching significance. After Hong Kong issued new regulations in June last year, due to restrictions on capital channels and market capacity, although the encryption market developed rapidly, its foundation was unstable. Later, public perception collapsed due to multiple fraud incidents, and it was once proposed that After the application for a licensed exchange to control OTC trading ended this year, market discussion continued to decrease, and its influence was far inferior to that of the United States, the absolute dominant player. Regional areas such as Singapore and Dubai also continued to gnaw on its share.

It wasn’t until the Web3 event week that Hong Kong was pushed to the forefront again. According to Hong Kong regulatory authorities, more than 220 Web 3.0-related companies from more than 20 regions including the Mainland, Europe and the United States have set up offices in Hong Kong. But in reality, due to space and cost constraints, despite the increase in offices, most companies only set them up as operations or technical branches, retaining a small number of employees here, and there are fewer headquarter companies.

In this context, for Hong Kong, the adoption of ETF can directly broaden investment channels, reduce regulatory resistance, promote the further migration of Hong Kong’s old money into the encryption field, provide new vitality for the development of its Web3 industry, and also Once again enhance Hong Kong’s open image in crypto and enhance its competitiveness in virtual assets. As for why it was chosen to be passed at this time, firstly, it is necessary to have a first-mover advantage under the premise of a stable regulatory mechanism. The license application is still closed, and other frameworks will follow suit; secondly, the United States has taken the lead in testing the waters and smoothed the situation. Certain regulatory hurdles.

But for the applicant institution, ETF application represents more direct benefits. Taking the Bitcoin ETF in the United States as an example, as of April 15, according to SoSoValue data, the total net asset value of Bitcoin spot ETFs was US$56.22 billion, and the ETF net asset ratio (market value as a percentage of the total market value of Bitcoin) reached 4.26%. Historically The cumulative net inflow reached US$12.53 billion.

Such a huge capital asset will naturally make the issuer a lot of money, and will also attract other fund issuers. According to CoinDesk, Matrixport predicted in a report that a Bitcoin ETF listed in Hong Kong could unleash up to $25 billion in demand. The report believes that up to $25 billion in funds could flow from mainland China if a Hong Kong-listed Bitcoin spot ETF is approved, as mainland investors take advantage of the Southbound Link scheme. Of course, according to current regulations, it is still difficult for the mainland to participate. It not only has to face restrictions on foreign exchange funds, but also has to deal with KYC problems. In terms of opening bank cards and exchange accounts, it is almost difficult for mainland participants to participate.

Back to this application, in terms of mechanism, Hong Kong is undoubtedly more advanced than the United States.

The U.S. authorities do not allow physical subscriptions in ETFs, and only use cash subscriptions. In the cash mode, the fund shares correspond to cash during the creation and redemption process of the ETF. The issuer purchases physical BTC with cash and adds cash custodians, thereby reducing the number of intermediaries exposed to actual Bitcoin and building a relatively The closed system makes each transaction of the market maker easier to track, reduces anti-money laundering problems, and eliminates the risks of financial institutions such as banks that are actually involved. It can be seen that this move is more in line with traditional securities trading methods, and also shows the concerns and hesitations of US regulators about this product.

For physical objects, the corresponding application and redemption of fund shares is BTC physical objects. The liquidity and price direction respond more quickly. The issuer bears smaller risk responsibilities and the operation is more convenient. Correspondingly, it is market risk transmission. Increase. However, Hong Kong also accepts this method of redemption. According to Foresight, two virtual asset spot ETFs jointly issued and managed by HashKey Capital and Boshi Fund (International) Co., Ltd. will adopt a physical subscription mechanism, allowing investors to directly use Bitcoin and Ethereum to subscribe for ETF shares.

From the perspective of stakeholders, in addition to the direct issuer, the custodian has also become the most popular among them. Currently, the only trading platforms that have obtained virtual asset licenses No. 1 and 7 from the Hong Kong Securities Regulatory Commission are OSL and Hashkey. Although both companies faced problems such as high license costs, few currencies on the shelves, and low offshore competitiveness. OSL was even rumored to have lost its parent company BC Technology Group in order to survive, but in ETF Driven by the trend, both will usher in new economic growth points, and custody fees and transaction fees are expected to break through.

However, judging from the differences in market size, the scale of custody is still inevitably limited. Take Hashkey as an example. Its custody business has been operating stably for more than a year, with assets under custody exceeding 2.2 billion yuan. As of the fourth quarter of 2023, Coinbase’s assets under custody at the end of the year were 101 billion U.S. dollars, which does not include current spot ETFs. Under the premise of scale, it is worth emphasizing that Coinbase hosts almost 90% of the current spot ETF scale.

On the other hand, Hong Kong’s virtual asset futures ETF issuers will face challenges. Compared with spot ETFs, futures ETFs are restricted by contract rollover and transaction procedures. Although the net value and money-making effect have been improved during the upward trend of Bitcoin in recent months, the liquidity and price tracking are obviously difficult to match that of spot ETFs, and funds are very likely to appear in the future. outflow. Or to absorb traffic, during the recent conference, CSOP, the issuer of futures ETFs, placed a large number of advertisements on buses in Hong Kong. The content was that Bitcoin would rise by 45% in the first two months of 2024, and global attention was in short supply.

From the perspective of the development of Hong Kong’s crypto industry, an interesting comparison is that as of April 15, Coinbase has launched 246 currencies, and Binance, the world’s largest cryptocurrency exchange, has launched 390 currencies. However, HashKey Exchange, the leader in Hong Kong, only lists 21 currencies.

Although it seems to be struggling to survive, from an optimistic perspective, this also represents the broad potential of Hong Kong encryption. Adam Zhou, co-founder of Hong Kong cryptocurrency company VDX, once said bluntly in an interview, "There will definitely be a unicorn in Hong Kong's encryption industry."

This is not a lie. Comparing the current crypto ecosystem in the United States, the local compliant exchange Coinbase has an absolute advantage, with a market capitalization of US$59.3 billion. The offshore exchange Binance leads the world. On the brokerage channel side, Robinhood has grown significantly, and its cryptocurrency revenue has long been higher than that of stocks. Transaction revenue. However, Hong Kong, whether it is local exchanges or brokers, is only in its early stages. In theory, it is only a matter of time before more currencies are put on the shelves and more funds flow in. Under the influence of RWA, stablecoins and ETFs, it will More forms of currency listing are emerging, and even new types of large-scale digital asset exchanges have emerged, which may contain a market worth billions of dollars.

Perhaps this is also the reason why the Hong Kong government firmly supports the deployment of virtual assets. More than 20 institutions are vying to be the first to deploy virtual assets, and more than 60 securities firms have entered the competition. The trend has arrived, and Pathfinder may be the first to eat crabs. .

However, the market reaction to this news was muted, and the market was not significantly affected. Bitcoin is now trading at $66,244, up 3.19% in 24 hours. However, the concept sector rose significantly, and Hong Kong concept coins rose by 10.6% in 24 hours.

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