Hong Kong’s Securities and Futures Commission (SFC) has approved spot ETFs based on Bitcoin and Ethereum, marking the world’s first approval of a spot Ethereum ETF. However, this approval is conditional, limiting access for mainland Chinese investors, which is expected to result in less capital inflow compared to the U.S. market, according to Fortune on October 15.
China’s largest asset managers, ChinaAMC, Harvest Fund Management, and Bosera Asset Management, announced that they had received approval from the SFC for the Bitcoin and Ethereum spot ETFs. Before formal listing, these products must meet certain conditions on the Hong Kong Stock Exchange and clearinghouses. The industry expects it will take approximately 10 days from approval to listing.
The approval of Bitcoin and Ethereum spot ETFs in Hong Kong is seen as a positive development for the cryptocurrency market.
In the U.S., the market has experienced explosive growth after the approval of ten spot Bitcoin ETFs on January 11, with over $56.2 billion in assets under management. Bitcoin prices surged post-approval, reaching an all-time high of $73,737.94.
According to Bloomberg data, major Bitcoin ETFs such as BlackRock’s IBIT and Fidelity’s FBTC rank in the top 0.1% of 5,500 ETFs launched over the past 30 years. Their rapid capital accumulation has earned U.S. Bitcoin ETFs a reputation as the most successful ETFs in history.
# Limited Access for Mainland Chinese Investors
Experts are focused on the fact that the approval came from Hong Kong, a special administrative region of China, where all cryptocurrency trading and investment are banned since September 2021. This approval has raised expectations of substantial capital inflows from mainland China into these ETFs. Research firm Matrixport optimistically projected that the Bitcoin spot ETFs could attract $25 billion from Chinese investors.
However, due to restrictions, such expectations may not be met. Bloomberg’s senior ETF analyst Eric Balchunas explained, “These ETFs are not accessible through China’s Stock Connect program, so mainland Chinese investors cannot officially invest in these products.” Chinese residents must use Stock Connect to invest in specific Hong Kong ETFs.
Balchunas further noted, “Considering that Hong Kong’s ETF market capitalization is $50 billion, it is unlikely to see capital inflows comparable to the U.S. It is predicted that capital inflows into Hong Kong’s Bitcoin and Ethereum ETFs will be limited to $500 million.”
# Unique ETF Structure in Hong Kong
Despite the conditional approval, Hong Kong’s early approval of an Ethereum ETF ahead of the U.S. is seen as a positive sign. The industry is particularly interested in the unique structure of Hong Kong’s ETFs.
These ETFs feature an “in-kind creation and redemption mechanism,” allowing direct exchange of Bitcoin and Ethereum coins into ETF shares. Compared to the U.S. Bitcoin ETFs, which follow a cash-only creation and redemption model, this structure is expected to reduce transaction and forex costs.
For the Ethereum ETF, this structure provides a glimpse into the market potential for staking. Justin D’Anethan, head of APAC business development at cryptocurrency firm Keyrock, commented, “The spot Ethereum ETF is different from traditional ETFs. Observing how market participants perceive and react to the staking aspect will be very interesting.”
