On April 15, 2024, three fund companies officially announced through social media that they had been approved to issue ETF financial products that can invest in spot Bitcoin and spot Ethereum. As soon as the news came out, it immediately triggered a reaction from the global capital market, and Hong Kong, as the farthest and fastest in the operation of crypto asset financial capital in Asia, has added another fire to the crypto bull market by itself.
Today, Sister Sa's team will analyze Hong Kong's crypto policy for you from the significance of the online issuance of Bitcoin and Ethereum spot ETF in Hong Kong to investors, and then help you make a more rational judgment.
01
Background to the approval of the Hong Kong Bitcoin/Ethereum ETF
Not long ago, the US Securities and Exchange Commission approved more than a dozen bitcoin spot ETFs in one go, which became a milestone event in the crypto asset market, and now Hong Kong, as a pioneer in crypto assets in Asia, has also passed the issuance of crypto asset ETF products (including Bitcoin and Ethereum), which not only provides investors with more choices, but also provides an opportunity for further integration of traditional capital markets and the crypto world.
For Hong Kong citizens, the Hong Kong Bitcoin/Ethereum ETF means that local residents can directly use their securities accounts to buy spot Bitcoin and Ethereum, without the need to open an account on a crypto asset exchange.
(1) There has been clear information disclosure before the issuance of the Hong Kong crypto-asset spot ETF
In fact, the information about the spot of crypto asset ETFs in Hong Kong SFC has given a clear message as early as half a year ago. On December 22, 2023, the SFC issued the Circular on the SFC's Authorisation of Funds to Invest in Virtual Assets and the Joint Circular on Virtual Asset-related Activities of Intermediaries, in which the SFC clarified the relevant regulations on the issuance and management of public fund products with virtual assets accounting for more than 10%, and also made requirements on the subscription, redemption, custody and valuation of crypto assets. The Circular on the SFC's Authorisation of Funds to Invest in Virtual Assets also clearly states that Hong Kong may approve spot ETFs of mainstream crypto assets such as Bitcoin and Ethereum, at which time users can choose to subscribe and redeem with cash or crypto assets.
Therefore, for those who are familiar with the regulatory trend of Hong Kong's crypto assets, it is actually not surprising that Hong Kong has been approved through Bitcoin and Ethereum spot ETFs. In terms of crypto asset exchange selection, according to public sources, two of the approved funds have chosen OSL, while the other has chosen to move forward hand in hand with HashKey, which shows that the great advantages of OSL and HashKey as licensed crypto asset trading platforms approved to allow retail clients to trade have begun to show. It is worth mentioning that HashKey's crypto asset investment institution, HashKey Capital Limited ("HashKey Capital"), has recently been upgraded to a Type 9 license from the SFC, which has been exempted from professional investors and can provide services to a wider range of users.
(2) What is the difference between mainland Hong Kong and US crypto asset spot ETFs?
Sister Sa's team believes that there are two main differences between mainland Hong Kong crypto asset spot ETF and the United States:
1. The underlying assets are different
The scope of crypto asset ETFs approved by the SFC in Hong Kong is larger than that in the United States, not only for Bitcoin spot ETF trading, but also for Ethereum spot ETF trading. The more than a dozen crypto-asset spot ETFs approved in the United States in January 2024 include only a single crypto-asset, Bitcoin, and there is no news about the approval of other crypto-asset ETFs at this time. In the previous analysis article, Sister Sa's team has explained that U.S. regulators have always maintained a cautious attitude towards crypto assets.
Sister Sa's team believes that the approval of both Bitcoin and Ethereum ETFs is a very huge leap forward for Hong Kong regulators, which is not only a pioneering initiative, but also a major encouragement to the Web3 industry and the crypto asset world.
2. The redemption method is different
In terms of subscription and redemption methods, ETFs in mainland China and Hong Kong can not only use cash for redemption, but also use crypto assets for direct redemption, simply put, they can directly use Bitcoin or Ethereum to directly purchase SEF assets. Compared to ETFs in the US, the move is significantly more "Web3". However, Sister Sa's team reminds that at the specific operational level, the use of crypto assets to subscribe for ETF products will inevitably be subject to stricter supervision, especially for the subscription and redemption of large crypto assets, which need to comply with the strict KYC of Hong Kong financial institutions.
02
What does a Hong Kong crypto asset ETF mean for investors?
The team of Sister Sa mainly starts from the advantages and disadvantages of Hong Kong crypto asset ETFs and gives you a brief introduction.
(1) Advantages of Hong Kong crypto-asset ETFs
1. The threshold for investment technology is low. Hong Kong crypto-asset spot ETFs can be traded directly on the Hong Kong Stock Exchange in a manner similar to trading traditional securities, without the need for more complicated registration and KYC on major crypto-asset trading platforms in Hong Kong. This move greatly lowers the technical threshold for crypto asset trading, and at the same time, traditional stock exchanges are more liquid than most existing crypto asset trading platforms due to capital volume issues, and the relevant regulatory measures are also more perfect.
2. The security of crypto assets is relatively higher. To put it simply, buying a crypto asset spot ETF does not require the actual holding and storage of Bitcoin, Ethereum and other assets, and investors no longer have to worry about the loss of their stored cryptocurrency private keys (a customer served by Sister Sa's team has experienced the loss of a large number of bitcoin private keys due to improper storage).
3. Tax incentives. From a more realistic level, investing in crypto asset spot ETFs can also obtain certain tax benefits under certain circumstances. Specifically, the current legal nature of spot crypto assets as "securities" is relatively certain, but other jurisdictions (especially those that have already started or are planning to start taxing crypto assets) have treated cryptocurrencies such as Bitcoin and Ethereum as "property". In the case that the mainland and Hong Kong agree to directly purchase spot crypto asset ETFs with cryptocurrency, they can avoid high property taxes by replacing crypto assets with spot ETFs. In addition, assuming that the bull market in the underlying crypto assets can last for a long time, it can also enjoy the low tax incentives of various jurisdictions to encourage long-term holding of securities.
(2) Points to note for crypto asset spot ETFs
1. Crypto asset spot ETFs cannot avoid the investment risks of crypto assets themselves. Investors need to understand that crypto spot ETFs are only an investment tool, and they cannot isolate the investment risks of crypto assets themselves. Of course, the crypto asset ETF itself is a portfolio, and a variety of investment targets can dilute the risk of crypto assets, but the risk will always exist.
2. Investment time difference. A crypto asset ETF is not a crypto asset per se, but an investment product that fluctuates dynamically by tracking and anchoring the price of the underlying crypto asset. In other words, if the crypto asset ETF itself cannot anchor the price of the crypto asset in a very timely manner, then it is very likely that the ETF will be temporarily decoupled from the crypto asset, leading investors to take investment opportunities under the crypto ecology of "one day in the currency circle, one year in the world".
03
Write at the end
In short, the approval of the ETF is a historic event for Hong Kong's crypto-asset market, which means that Hong Kong has effectively fulfilled the "embrace of crypto-assets" For investors, ETFs have lowered the technical threshold for Hong Kong investors to invest in crypto assets, which is a safer and more tax-advantaged investment method, which is more in line with the interests of relevant investors in the long run, and for the traditional capital market, at a time when the mainland's economic development is under pressure, the advantages of crypto assets as an emerging investment product are enough to attract some funds to invest in it.
At present, as long as the funds are in Hong Kong, they can directly buy crypto asset spot ETFs, but due to legal restrictions, mainland brokerages cannot directly access the product for the time being. Although there is no clear regulatory guideline, in light of Hong Kong's previous policy, residents of mainland China may still not be able to purchase directly. Of course, the approval of this ETF is only the beginning of this milestone product, and we will wait and see how its subsequent development will be in the future.
The above is today's sharing, thank you readers!
If you have friends around you who are interested in new technology and digital economy, welcome to forward it to Ta.
For more information, please contact our team
飒姐工作微信:【 xiaosalawyer】
Sister Sa's work phone:【 +86 171 8403 4530】