Stock Market: Hong Kong Now Relying on Bitcoin Spot ETFs Too, Going Even Further

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Thursday, April 18, 2024, 1:00 p.m.

After the great success in the US, the so-called spot ETFs, which are based on the two largest cryptocurrencies, Bitcoin and Ethereum, were approved last Monday in Hong Kong. Bitcoin pro Roman Reher gives us a rundown of events in China's special administrative region.

Bitcoin and Ethereum Spot ETF: What Exactly Is Coming in April on the Hong Kong Stock Exchange happened?

After speculation had already arisen in the previous days and weeks that the investment products would soon be approved by the Hong Kong Securities and Futures Commission (SFC), it was April 15, 2024. So far: The applicant asset managers announced early this morning on Chinese social media platform WeChat that they had received the green light from the supervisory authority. However, it is still unclear when Bitcoin and Ethereum spot ETFs can first be traded.

About the expert

Roman Reher is a German founder, entrepreneur and Bitcoin expert. His YouTube channel “Blocktrainer” is one of the largest Bitcoin-focused channels in the world. Reher manages to express complex technical and economic issues in easy-to-understand words. Reher and his team offer current, high-quality content on Bitcoin and the financial markets for the German-speaking public.

Why are spot ETFs such a big deal for Bitcoin and Co.?

Bitcoin spot ETFs allow investors to invest in the asset using structures they know. Although it is also possible to buy Bitcoin directly and store it yourself, the approval of Bitcoin spot ETFs in the US has shown how great the demand is for these types of investment products. Institutional investors in particular seem to prefer building positions in Bitcoin through these securities. This means they can trust established asset managers rather than sometimes shady crypto exchanges and don't have to worry about asset custody.

US-based Bitcoin spot ETFs have seen combined net inflows of around $12.5 billion since their approval in January this year. This huge buying demand has also significantly boosted the price of Bitcoin. Therefore, much attention is currently paid to whether similar products will be marketable in other jurisdictions. More and more asset managers around the world realize that interest in Bitcoin is increasing. Therefore, they try to launch products that allow their clients and, through commissions, themselves to benefit from the rebound in this asset class.

Major financial service providers relying on Bitcoin and approvals from regulatory authorities lend additional legitimacy to the asset, which is only 15 years old.

After Canada and the US, Bitcoin spot ETFs are now coming to Hong Kong. What does this mean for the market?

The Hong Kong Stock Exchange is one of the largest in the world, ahead of the German, Canadian or London Stock Exchanges. Consequently, there is great hope that a large amount of capital will flow into Bitcoin through new investment products.

However, the new funds are likely to receive significantly lower inflows than equivalent US products. US Bitcoin ETFs alone manage more assets than all Hong Kong-listed ETFs combined. Therefore, ETF experts at Bloomberg only optimistically forecast around $500 million in inflows into new Hong Kong investment products. To put it in perspective: That's less than BlackRock's Bitcoin ETF absorbs on its own in a typical week.

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Although subsidiaries of mainland Chinese asset managers have also received approval, citizens of the Republic are probably not officially allowed to invest in ETFs. In 2021, China not only banned Bitcoin mining in its own country but also practically made cryptocurrency trading illegal, but mainland Chinese are still finding ways to invest in Bitcoin and Co., which is also reflected in the data internals of the Binance cryptocurrency exchange. program that was made available to the Wall Street Journal.

The Special Administrative Region of China, on the other hand, is taking a much more liberal approach and would like to become a regulated crypto hub. Fully licensed cryptocurrency exchanges for private investors or Bitcoin futures ETFs have long existed in Hong Kong, but they are not secured by Bitcoin per se and fail to reflect the asset's price 1:1 in the long term.

Ethereum ETFs are also approved in Hong Kong, although approval signals in the US are quite poor, what does that mean?

While Bitcoin and Ethereum spot ETFs can be traded in Canada as of 2021, the United States is still holding back here. In fact, it currently seems more like the US Securities and Exchange Commission (SEC) wants to classify Ethereum as a security, and not as a commodity or commodity, like Bitcoin is. This is mainly due to Ethereum's lower decentralization. ETF experts also highly doubt that Ethereum-based investment products will get the green light in the US in the near future.

Consequently, the Hong Kong SFC has been less strict in this regard. But since the US capital market is by far the most important in the world, the real milestone for the second cryptocurrency is still pending, while Bitcoin already reached it at the beginning of the year.

On the other hand, are Bitcoin-based investment products about to be approved?

In Australia, a Bitcoin spot ETF is awaiting stock exchange approval and in South Korea, the Minju Democratic Party won the general election in which it campaigned on a promise to allow Bitcoin spot ETFs.

In the EU, ETFs cannot represent a single asset due to the UCITS directive. That's why you can officially only buy Bitcoin ETC or ETN here. Although these investment products are also collateralized with Bitcoin, they are legally different constructs.

While investors with ETFs have rights to the underlying asset, with ETNs or ETCs they can walk away empty-handed if the issuer goes bankrupt. Bitcoin and Ethereum ETNs are also expected to hit the London Stock Exchange in late May.

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This text comes from an expert from the FOCUS online Circle of EXPERTS. Our experts have a high level of specialist knowledge in their subject area and are not part of the editorial team. Learn more.

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