Hong Kong news: A huge amount of funds from the mainland will flow into ETFs

Author: Mlixy; Source: W3C DAO

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According to TVB News, the Hong Kong Securities Regulatory Commission has approved at least three fund companies to cooperate with licensed exchanges to allow citizens to purchase spot Bitcoin and Ethereum with securities accounts.

Currently, investors who want to purchase virtual currencies need to open accounts at virtual currency exchanges. Several fund companies announced that they have been granted licenses by the Hong Kong Securities Regulatory Commission and have cooperated with two licensed exchanges on the market to launch virtual asset fund products, which means that citizens can directly use securities accounts to purchase spot Bitcoin and Ethereum without opening accounts at exchanges. Some industry insiders believe that the new measures will help promote the development of virtual asset transactions and increase tax revenue.

OSL CEO Pan Zhiyong told Foresight News: "It is expected that at the end of April, investors can officially purchase Bitcoin spot ETFs from these three fund companies, just like buying ordinary stocks." People related to VDX and HashKey Exchange also confirmed this information. Unless encountering more unexpected circumstances, investors will most likely be able to purchase Bitcoin spot ETFs in Hong Kong in April-May.

As for the specific time of Ethereum spot trading in Hong Kong, Pan Zhiyong said: "It is expected that Ethereum spot ETFs can be officially traded after Bitcoin spot ETFs have been traded for a period of time."By asking several CEOs of licensed (applying for licenses) exchanges in Hong Kong, some said that it would be a few weeks after the launch of Bitcoin spot ETF trading, and some said that it would be a month after its launch.

Hong Kong's adoption of the Bitcoin spot ETF is considered by many practitioners to be an event second only to the United States' adoption of the Bitcoin ETF. Before this, whether it was Canada, Germany, or Switzerland, the ceiling of funds was far lower than that of the Hong Kong market.

Especially on the issue of whether southbound funds can enter the Hong Kong Bitcoin spot ETF, some industry insiders said that this is possible.

Competition in the new market

For the prediction of market size, Matrixport predicted in a report that a Bitcoin ETF listed in Hong Kong could release up to $25 billion in demand.

“As mainland investors take advantage of the Southbound Connect program, up to $25 billion may flow in from mainland China if the Hong Kong-listed Bitcoin spot ETF is approved.”

Regarding southbound funds, Wayne said: According to Hong Kong regulations, as long as the funds have arrived in Hong Kong, Bitcoin spot ETFs can be bought in the secondary market, but they will not be bought and sold directly through domestic brokerages.

In addition, QCP Capital, a Singapore digital asset trading agency, said that after Bitcoin and Ethereum spot ETFs are approved in Hong Kong, they will release institutional investment demand during the Asian trading hours. They believe that "previously, participants who wanted to invest had been limited to the U.S. time period, but now this provides institutional investors with an option based on the Asian time period. We believe that this will be bullish in the short term, but there are more important factors and drivers, such as macro events."

Adrian Wang, CEO of Asian digital asset management company Metalpha, said that the upcoming spot Ethereum ETF may gain great traction. "I think the Ethereum spot ETF may be more influential and important than Bitcoin, because investors can choose to gain Bitcoin exposure through Bitcoin-related stocks such as mining machine companies, but there are currently no ETH-related concept stocks."

And Emma, ​​partner of New Fire Asset Management, believes that according to the annual report on the Asset and Wealth Management Activities Survey released by the Hong Kong Securities and Futures Commission, by the end of 2022, the total value of Hong Kong's asset and wealth management business will exceed 30.5 Assuming that 1% of the assets enter the crypto market through the Bitcoin spot ETF, it will bring about 300 billion Hong Kong dollars (about 38 billion US dollars) of liquidity, which is even higher than the market increase after the issuance of the US Bitcoin spot ETF (about 270 billion US dollars). However, Eric Balchunas, senior ETF analyst at Bloomberg, doesn’t think so, saying on X Platform: “Hong Kong Bitcoin spot ETFs have been approved to exist but have not yet been launched. Rumor has it that they will be launched next week to avoid a conflict with the Dubai conference. Don’t expect a huge influx of funds (I’ve seen an estimate of $25 billion, which is crazy). We think they’ll be very lucky if they can attract $500 million. Here’s why: 1. The Hong Kong ETF market is very small, only $50 billion, and mainland Chinese residents cannot buy these ETFs, at least from official channels. 2. The three issuers that have been approved (Bosera Fund, China Asset Management, and Harvest Fund) are all small. There is no large institution like BlackRock participating yet.
3. Hong Kong's underlying ecosystem is illiquid and inefficient, so these ETFs may see large spreads and premium discounts.
4. The fees for these ETFs may be between 1-2%. This is a far cry from the extremely low fees in the United States." However, Balchunas said: "To be clear, all this is obviously positive for Bitcoin because it opens up more investment channels.

But in the long run, Hong Kong cryptocurrency ETFs will have stronger liquidity, narrower spreads, lower fees, and greater issuer participation. But in the short and medium term, our expectations are more modest." In addition, Balchunas added: "Yes, the Ethereum ETF has also been approved. The $500 million we estimate is the sum of all these ETFs added together."

Battle of the East and the West

From the current situation, the United States and Hong Kong are the two major markets for Bitcoin ETFs, representing different positions and strategies of the West and the East respectively.

The United States is the world's largest financial market and the largest demander of Bitcoin ETFs, but its regulators have always been cautious and conservative about Bitcoin ETFs. Until recently, it approved 11 Bitcoin spot ETFs for listing, which is its compromise and concession to market pressure.

Compared with the United States, Hong Kong has two differences in this virtual asset spot ETF. First, in addition to Bitcoin, Hong Kong has also approved Ethereum's spot ETF, and second, Hong Kong allows not only cash delivery but also physical delivery.

Regarding the first point, US regulators have not allowed their fund companies to launch Ethereum spot ETFs because there is no conclusion on whether Ethereum is a security. Hong Kong has different policies and there are no legal obstacles. It can be expected that more ETFs for other virtual assets will be issued in the future.

Regarding the second point, Paolo of VDX said: "Physical delivery means that you own a BTC and can exchange it for a Bitcoin ETF with a nearly fixed ratio, but in the United States, you can only use legal currency to buy Bitcoin spot ETFs. Physical delivery obviously increases liquidity and arbitrage opportunities."

It can be said that the future competition between the United States and Hong Kong in Bitcoin ETFs reflects the different perspectives and interests of the East and the West in the field of virtual assets, and also affects the future direction and development of Bitcoin.

Written at the end

Once southbound funds are allowed to invest in Hong Kong Bitcoin spot ETFs, it will open a window for funds from mainland China. It also means that China and the United States, the two countries with the largest GDP in the world, will allow the massive funds accumulated in their respective financial markets to flow into Bitcoin for the first time this year. This may also be directly related to whether Hong Kong can become a cryptocurrency financial center second only to the United States.