Following the successful launch of the first batch of Bitcoin spot ETFs in the United States, financial institutions in Hong Kong are also intensively developing the virtual asset spot ETF market. On December 22 last year, the Hong Kong Securities and Futures Commission issued the "Circular on SFC-authorized funds investing in virtual assets", clearly expressing its willingness to accept applications for recognition of virtual asset spot ETFs.
It is reported that Harvest International became the first institution to submit a Bitcoin spot ETF application to the Hong Kong Securities Regulatory Commission. This move undoubtedly injected new vitality into Hong Kong’s virtual asset market. Many Hong Kong institutions have stated that virtual asset ETFs have huge development potential in Hong Kong. Compared with futures-based virtual asset ETFs, spot ETFs are more likely to become the mainstream of the future market.
On March 25 this year, HashKey Group, which holds a license for a virtual asset trading platform in Hong Kong, announced that they are working closely with more than 10 brokerages to prepare for the launch of spot ETFs. HashKey expects that the Hong Kong Bitcoin spot ETF will see clear progress in the first half of this year. As a licensed custodian, HashKey will provide underlying infrastructure support for funds applying for ETFs in Hong Kong, including trading and custody. HashKey revealed that their custody business has been operating stably for more than a year, with a custody asset size of more than 2.2 billion yuan, and is gradually becoming the preferred custodian for fund institutions to carry out virtual asset spot ETFs.
In November 2023, China Asset Management (Hong Kong) announced that it had reached a memorandum of cooperation with HashKey Exchange and Hamsa, the first exchanges in Hong Kong to obtain virtual asset licenses. They plan to jointly promote the innovation process of Web3.0 in Hong Kong's asset management industry. A person from China Asset Management (Hong Kong) said: "Futures-based virtual asset ETFs have certain limitations, and spot ETFs will be the mainstream of the future market. At present, China Asset Management (Hong Kong) is actively studying the operating mechanism of spot virtual asset ETFs under the guidance of the Hong Kong Securities Regulatory Commission, and exploring the development prospects of virtual asset ETFs in Hong Kong."
Bloomberg pointed out that as the world's attention to the virtual asset market continues to increase, Hong Kong's financial institutions are seizing this opportunity to accelerate the layout of the virtual asset spot ETF market. In the future, spot ETFs are expected to become an important innovation direction for Hong Kong's asset management industry, further promoting Hong Kong's position in the global virtual asset market. Goldman Sachs' Asian clients have once again entered the field of cryptocurrency this year, and the approval of the US Bitcoin spot ETF has undoubtedly injected new vitality into them. However, nearly $900 million of funds withdrew from the Bitcoin spot ETF last week, highlighting the problem of capital outflow from Grayscale Bitcoin Trust, while BlackRock and Fidelity's product subscriptions have also slowed down. This is the first time these 10 funds have experienced such a bleak week since their establishment in January this year.
Meanwhile, in the distant United States, the road to the listing of Bitcoin spot ETFs is not smooth. Despite its approval, Grayscale's continued selling has made the market turbulent. Against this background, what is the significance of Hong Kong financial companies considering entering the Bitcoin spot ETF market?
Compared with the United States and Hong Kong, Hong Kong seems to have a better regulatory policy on virtual asset ETFs. According to the Hong Kong Securities and Futures Commission's "Circular on SFC-approved Funds Investing in Virtual Assets", Bitcoin spot ETFs allow subscription and redemption in both physical and cash. This policy provides investors with more choices and also reflects Hong Kong's open attitude in the field of virtual assets.
However, in the United States, although the applicants proposed to allow both physical and cash redemption methods in their early applications, they all chose the more stable "cash" redemption method in the end due to risk considerations. In contrast, the Bitcoin spot ETF market in Hong Kong is expected to have multiple redemption methods of cash and physical redemption as its main advantage.
Since the United States approved the Bitcoin spot ETF, Grayscale's continuous huge sell-offs have become the focus of market attention. There are two main reasons behind this: first, Grayscale's high management fees allow investors to save costs when choosing other fund companies; second, Grayscale and other newly issued Bitcoin spot ETFs have different subscription and redemption methods. These factors have jointly contributed to Grayscale's capital outflow and also provided an opportunity for Hong Kong financial companies to reflect and learn from it.
Hong Kong has unique advantages and opportunities in the field of virtual assets. By flexibly applying regulatory policies, Hong Kong is expected to stand out in the global Bitcoin spot ETF market and become a destination favored by investors. However, to achieve this goal, Hong Kong financial companies also need to conduct in-depth research on market demand and continuously innovate products and services to meet the diverse needs of investors.
In conclusion, despite the many challenges facing the US Bitcoin spot ETF market, Hong Kong financial companies still have the opportunity to find room for development in it. By learning from the lessons of the United States and combining its own advantages and characteristics, Hong Kong is expected to achieve greater breakthroughs and development in the field of virtual assets. This mechanism works by converting trust assets into exchange-traded funds (ETFs). This provides an arbitrage opportunity for investors who bought GBTC at a discount, who can take advantage of the discount and the rise in Bitcoin prices to sell without going through the cumbersome redemption and repurchase process.
However, it is worth noting that the Hong Kong market currently does not have a Bitcoin trust as large as the Grayscale Fund. Therefore, even if the Bitcoin Trust in the Hong Kong market is converted into an ETF and begins to have redemption operations, it is unlikely to see a large-scale sell-off.
After last week's bad news about the outflow of funds from Bitcoin spot ETFs, Bitcoin investors have regained confidence on Monday, and the price of Bitcoin has climbed above $70,000 again. Most digital asset prices also showed an upward trend, and the price of Bitcoin even broke through $71,000 per coin, with a daily increase of 7.34%. This is the first time that the price of Bitcoin has exceeded the $70,000 mark in more than a week. At the same time, the price of Ethereum rose by about 6%, while the prices of Solana and Dogecoin also rose by more than 4%.
From a broader perspective, the positive performance of the cryptocurrency market this week is partly due to BlackRock's recent entry into the field of asset tokenization. BlackRock's tokenized asset fund, called "BUIDL", will be built on the Ethereum network. This marks the first tokenized fund issued by BlackRock on a public blockchain, injecting new vitality into the cryptocurrency market.
In addition, the latest macroeconomic indicators continue to show bullish sentiment. The Swiss National Bank unexpectedly lowered its benchmark interest rate, symbolizing the start of a global monetary easing cycle. Mexico's central bank also followed this trend and implemented a rate cut policy. At the same time, the Federal Reserve, the European Central Bank and the Bank of England are also expected to take similar measures in the coming months.
In general, with the rapid development of the global cryptocurrency market and the growing interest of investors in virtual assets, Hong Kong, as a global financial center, is actively promoting the development of Bitcoin spot ETFs. Taking advantage of its latecomer advantage and drawing on the regulatory norms of other jurisdictions such as the United States on crypto assets, the Hong Kong region is expected to become an important player in the cryptocurrency market in the future. When considering Hong Kong's current regulatory environment, we can find that the city is gradually showing a friendly attitude towards crypto technology. Through the flexible application of relevant regulations, Hong Kong is striving to shape a jurisdiction that is conducive to the development of crypto technology. In fact, it has become a broad consensus in the industry that China regards Hong Kong as a testing ground for crypto technology. If Hong Kong finally approves the Bitcoin spot ETF, the Bitcoin market may usher in an unprecedented wave of funds.
