Hong Kong is positioning itself as a digital asset hub by following in the footsteps of the United States and listing a batch of cryptocurrency exchange-traded funds (ETFs). These ETFs will provide a window into whether the city is making progress in its ambition to become a center for digital assets.
The Upcoming Hong Kong Crypto ETFs
- Spot-Bitcoin ETFs: Some of China’s top asset managers are in the final stages of preparations to launch spot-Bitcoin and Ether ETFs by the end of April. These ETFs will likely invite comparisons with the three-month-old US Bitcoin funds that have garnered $56 billion in assets to date.
- Potential Demand Sources: Hong Kong has been competing with Singapore and Dubai to establish a tightly regulated home for the virtual asset industry. The level of demand for the upcoming ETFs will provide clues about Hong Kong’s progress. Potential sources of demand include Chinese wealth parked in the city, crypto exchanges, and market makers active in the Asia-Pacific region.
- Issuers: The prospective Hong Kong issuers include Harvest Global Investments Ltd. (the local unit of China Asset Management) and a partnership between HashKey Capital Ltd. and Bosera Asset Management (International) Co. However, these issuers lack the name recognition of US-based giants like BlackRock Inc. and Fidelity Investments.
- Regulatory Differences: While the US Securities & Exchange Commission reluctantly allowed ETFs investing directly in Bitcoin, Hong Kong has given the initial nod for spot-Bitcoin and Ether funds. The in-kind subscription and redemption mechanism for the Hong Kong ETFs differ from the US counterparts.
Challenges and Opportunities
- Name Recognition: Hong Kong lacks the “BlackRock effect” that the US funds can rely on. Expectations for ETF demand need to be calibrated considering Hong Kong’s smaller financial sector.
- Approval Hurdles: The US SEC remains skeptical of crypto due to market volatility, bankruptcies, and high-profile frauds. ETFs for second-ranked Ether face an uphill task for approval in the US. In contrast, Hong Kong has already approved spot-Bitcoin and Ether funds.
- Hong Kong’s Ambition: Beyond ETFs, Hong Kong is also considering licensed digital-asset exchanges and developing a regulatory framework for stablecoins. These efforts aim to further cement the city’s status as a safe and regulated environment for crypto investments.
In summary, Hong Kong’s crypto ETF launches will test its ambition to become a digital-asset hub. While challenges exist, the city’s regulatory approach and strategic positioning offer opportunities for growth in the crypto space.
