Hong Kong approves Ethereum spot ETF faster than the United States.

On April 15, 2024, Harvest Global Investments announced today that it has received in-principle approval from the Hong Kong Securities and Futures Commission to launch two digital asset (Bitcoin and Ethereum) spot ETF products. These products will be provided through OSL Digital Securities Co., Ltd., the first digital asset platform licensed and protected by the Hong Kong Securities and Futures Commission, and aim to effectively solve the price premium caused by excessive margin requirements and lack of short positions by accurately reflecting the real-time value of Bitcoin.

On the same day, China Asset Management (Hong Kong) also announced that it has obtained approval from the Hong Kong Securities and Futures Commission to issue ETF products that invest in Bitcoin and Ethereum spot. These products will provide trading and custody services through cooperation with OSL Digital Securities Co., Ltd. and BOCI Prudential Trustee Limited.

In addition, according to Tencent Finance, the Hong Kong Securities and Futures Commission has updated the list of virtual asset management funds on April 10, and is preparing to announce the first list of Hong Kong spot Bitcoin ETFs on April 15. In addition to Harvest Global and China Asset Management, the first batch of approved funds also includes Bosera Fund and Value Partners Financial, although the latter two have not yet appeared in the latest updated list. According to the plan, the Hong Kong Securities and Futures Commission will list the spot Bitcoin ETF on the Hong Kong Stock Exchange around April 25, no later than the end of April.

The earliest batch of asset management companies in China

Harvest Global Investments is one of the first Chinese asset management companies to set up branches outside of China. Since its establishment in 2008, it has developed into a company that occupies an important position in the global asset management industry. The company not only has a deep business foundation in the Asian market, but has also successfully expanded to international financial centers such as London and New York. As of now, the total assets managed by Harvest Global Investments exceed US$20.7 billion.

As the parent company of Harvest Global Investments, Harvest Fund Management Co., Ltd. has become one of the largest fund management companies in China since its establishment in 1999, with assets under management exceeding RMB 1.3 trillion. Its shareholders include China Credit Trust Co., Ltd. (40%), Lixin Investment Co., Ltd. (30%), and Deutsche Asset Management (Asia) Co., Ltd. (30%).

ChinaAMC (Hong Kong), a wholly-owned subsidiary of ChinaAMC, has grown into a leading asset management company in the Hong Kong market since its establishment in Hong Kong in 2008. Relying on its parent company's strong influence in the Chinese market, ChinaAMC (Hong Kong) focuses on providing diversified investment products to global investors, including long-term stock and bond funds, hedge funds and ETFs.

As of the end of 2023, China Asset Management's total assets under management will exceed US$266 billion. China Asset Management (Hong Kong)'s major shareholders include CITIC Securities (62.2%), Wanxin Investment (13.9%) and Canada's Power Group (13.9%), whose international backgrounds and financial strength provide solid support for the company. China Asset Management is also one of the first national social security fund managers, the first corporate annuity fund managers, the first domestic QDII fund managers, the first domestic ETF fund manager, the first domestic Shanghai-Hong Kong Stock Connect ETF fund manager, etc., and is one of the fund management companies with the widest business areas.

According to a research report by Matrixport cited by CoinDesk, the Hong Kong-listed Bitcoin spot ETF is expected to attract up to US$25 billion in mainland China funds through the "Southbound Connect" mechanism. The study pointed out that although the Southbound Connect mechanism allows up to US$70 billion in funds to flow into the Hong Kong stock market each year, the actual amount used is usually lower. This provides a huge potential source of funds for Bitcoin ETFs.

The report further analyzed that with the decline of the RMB against the US dollar and the increasing interest of Chinese investors in diversified investments, Bitcoin ETF products are particularly attractive. It is expected to attract not only individual investors, but also many institutional investors seeking safe haven opportunities.

Is Hong Kong a life-saving straw for Ethereum?

In addition to the heated discussion on the background of the two asset management companies, the question that everyone is also very concerned about is why Hong Kong passed the Ethereum spot ETF earlier than Europe and the United States?

Compared with the strength of Bitcoin in the past year, Ethereum appears to be very weak. The price and increase in the past are not as good as Bitcoin, and the future will not be better than the altcoin. The US SEC has repeatedly postponed the review results of the Ethereum ETF. Kong Jianping, director of Hong Kong Cyberport, believes that "Hong Kong took the lead in passing the Ethereum ETF, which is the life-saving straw for Ethereum."

In the community's research and analysis, the reason why Hong Kong approved the Ethereum spot ETF earlier than Europe and the United States is not only due to its flexible regulatory environment and open attitude towards financial innovation, but also affected by the following key factors:

1. Adaptability and forward-looking of the regulatory environment

Hong Kong's Securities and Futures Commission (SFC) is known for its efficient regulatory framework and rapid response to financial innovation. Compared with the SEC in the United States and regulators in various countries in Europe, the SFC is more active in exploring how to integrate emerging financial technologies and products, such as cryptocurrency ETFs, into the mainstream market. For example, the SFC began researching and testing regulatory frameworks related to crypto assets long before other countries, which enabled Hong Kong to quickly adapt to market changes and implement new rules.

2. Strong market drivers

Hong Kong’s financial markets are particularly focused on meeting investor needs, which is particularly prominent among global financial centers. The rapid rise in popularity of cryptocurrencies and related financial products among Hong Kong investors has created opportunities for the SFC to drive innovation in areas that have not been fully explored in other parts of the world. This market driver has prompted regulators to optimize the approval process so that products that meet market and investor expectations can be launched more quickly.

3. Geographical and strategic advantages

As an Asian financial hub, Hong Kong plays the role of a bridge connecting the Eastern and Western markets. This geographical advantage gives Hong Kong a unique strategic position in the global financial dynamics, enabling it to attract a large amount of international capital to participate in its market. In addition, Hong Kong has maintained close ties with mainland China under the "one country, two systems" policy, while also enjoying a relatively independent economic and legal system, which provides it with a unique perspective and experimental field in global financial innovation.

4. Seize the pricing power first

"Whoever controls the spot ETF flow controls the pricing power." From the passage of the Bitcoin spot ETF, we can see that Wall Street capital is more powerful in controlling the pricing power of Bitcoin. In the global financial market, the control of pricing power is crucial to the market's influence and competitiveness. By taking the lead in approving the Ethereum spot ETF, Hong Kong not only provides new investment tools for global investors, but also substantially participates in the competition for cryptocurrency pricing power.

BlockBeats found that most users on Twitter are not optimistic about Hong Kong's passage of Bitcoin and Ethereum ETFs, believing that it has no effect from a market perspective.

In response, some netizens said: "Be optimistic, this is a process of a region and a country accepting digital currency."

Hong Kong's policy one year ago

In the past year, Hong Kong has shifted to a more cryptocurrency-friendly policy stance, which has attracted widespread attention from investors in and outside the region. However, this policy change has also triggered discussions about policy sustainability, especially in the development of virtual assets such as Bitcoin and Ethereum.

On September 14, Vitalik Buterin said in a speech in Singapore today that although Hong Kong has shifted to a cryptocurrency-friendly stance since the end of last year, cryptocurrency projects should consider the stability of its friendly policies when setting up offices in Hong Kong.

In response, Hong Kong Legislative Council member Wu Jiezhuang responded to the concerns of Ethereum founder Vitalik. Councillor Wu stressed that Hong Kong's policy formulation has undergone rigorous procedures and extensive public consultation to ensure the stability and continuity of policies. He also invited Vitalik to Hong Kong to personally understand the actual situation, emphasizing the transparency and public participation of Hong Kong's policies.

"Hong Kong's policies are very stable, and the law will not change overnight," Councillor Wu wrote publicly on the social media platform.

As the policy is further formulated, the Hong Kong Securities and Futures Commission clearly stated in the "Joint Circular on Virtual Asset-Related Activities of Intermediaries" and the "Circular on SFC-Authorized Funds Investing in Virtual Assets" issued in December 2023 that Hong Kong is ready to accept applications for the recognition of virtual asset spot ETFs. This policy further proves Hong Kong's open attitude and support for innovative financial products as an international financial center.

These developments show that while investors need to assess the policy risks of any market, the Hong Kong government has demonstrated clear commitment and support in the field of virtual assets. This not only enhances Hong Kong's position in the global fintech field, but also provides confidence to international investors and project developers that Hong Kong can provide a stable and supportive environment for innovation.

Related reading: "Hong Kong announces the opening of Bitcoin spot ETF, a quick look at the key points"

As for whether Hong Kong can really compete for more pricing power on Ethereum and whether it can introduce more liquidity funds to the crypto market, we still need to observe for a while. But what is certain is that Hong Kong can pass the Bitcoin spot ETF and the Ethereum spot ETF, which is worthy of our optimism.

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