Hong Kong breaks ground with cryptocurrency ETF approval, Asian investors eyeing market entry

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Hong Kong is stepping into the spotlight with its upcoming exchange-traded funds (ETFs) that will invest directly in cryptocurrencies like bitcoin and ether. While industry insiders see this as a positive development, they also caution that demand might not match the fervor seen in the US.

The Securities and Futures Commission (SFC) recently gave the green light to several mainland Chinese fund houses and local virtual asset firms to proceed with their applications for these ETFs. This move, following the announcement of plans to allow spot crypto ETFs, is seen as a significant milestone in Hong Kong’s ambition to become a global virtual asset hub. Notably, Hong Kong is ahead of the US, which is yet to decide on allowing spot ether ETFs.

Angela Ang, senior policy adviser at TRM Labs, anticipates a healthy level of interest, particularly since other Asian jurisdictions are currently avoiding domestic spot bitcoin ETF issuance. Michael Wong, a partner at Dechert LLP in Hong Kong, highlights the convenience for Hong Kong and Asian investors who may prefer to avoid the complexities of opening a US investment account and paying its capital gains tax.

Wong emphasizes the simplicity for Hong Kong investors or Asian investors generally, who may find the prospect of filling out US tax forms daunting. He also notes that Hong Kong does not tax capital gains, making it an attractive destination for investors seeking exposure to bitcoin.

Chengyi Ong, head of APAC policy at Chainalysis, sees Hong Kong’s approval of bitcoin and ether ETFs as a milestone for the digital asset industry. He points out that demand for price exposure to virtual assets is strong in Asia, which accounted for a significant portion of bitcoin traded in February compared to North America.

Despite the optimism, Ong acknowledges that demand for Hong Kong’s ETFs will hinge on factors such as the size of the local market and the fees charged. Wong echoes this sentiment, emphasizing that the expense ratio will be a crucial consideration for investors.

Eric Balchunas, a senior ETF analyst at Bloomberg, offered a more reserved view, suggesting that the offering in Hong Kong might not attract significant flows compared to similar products in the US due to the relatively smaller market size.

Firms planning to launch spot crypto ETFs in Hong Kong are advised to fulfill other requirements, such as applying to list them on the local stock exchange, as they await final approval from the SFC. Wong estimates that the ETFs could be launched as early as June, marking a new chapter in Hong Kong’s financial landscape.

(Source: SCMP | Bloomberg | Coin Telegraph | Nikkei Asia)

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