Charting Hong Kong’s Path to Cryptocurrency ETF Dominance

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  • Hong Kong joined the cryptocurrency ETF market like the US, intending to become a major player.
  • Asset managers in mainland China create ETFs that track ether and bitcoin prices, but first trading is mixed.
  • The pandemic-related control Beijing has over Hong Kong’s financial atmosphere fuels expectations of a cryptocurrency hub.

Hong Kong has launched its first cryptocurrency exchange-traded funds (ETFs), entering a race that the US is currently leading.

This action follows the US introduction of comparable products by major players in the sector like BlackRock and Fidelity Investments, which have drawn large investments but helped push the price of bitcoin to previously unheard-of heights—it surpassed $73,000 in March.

Hong Kong Accepts Cryptocurrency ETF in the Face of International Rivals

Leading this effort have been the three mainland Chinese asset managers, China Asset Management, Harvest Global Investments, and Bosera Asset Management, who have each released two ETFs that track the prices of ether and bitcoin, respectively.

Working along with HashKey Capital, Bosera’s ETFs debuted and closed between 1.5% and 1.8% higher, while Harvest Global Investments and China Asset Management had a little loss of 0.5% to 0.8%.

Even with such a strong start, the combined trading turnover for all six ETFs was just over HK$99.5 million (US$12.7 million), far less than the US counterparts, whose first trading day had a turnover of almost $4 billion.

In 2022, pandemic limitations and Beijing’s growing control over the city’s financial environment gave Hong Kong’s ambition to become a cryptocurrency hub more impetus. Undersecretary for financial services and the Treasury in Hong Kong, Joseph Chan, welcomed the introduction of spot cryptocurrency products as evidence of Hong Kong’s leadership in the growth of crypto assets in Asia.

Early in 2022, CSOP Asset Management launched the first bitcoin and ether futures ETFs in Hong Kong; in December of the same year, the Securities and Futures Commission established the framework for spot crypto ETFs.

Interest in cryptocurrency ETFs was further increased worldwide in January when the US Securities and Exchange Commission approved spot bitcoin ETFs. The billions in net inflows that BlackRock’s iShares Bitcoin Trust—which oversees assets worth over $17 billion—and other US-based ETFs have gathered show investor interest in digital assets.

Hong Kong’s entry into the global crypto ETF market follows trends set by the US, aiming to establish itself as a major player.[Photo/Medium]

Even with the high hopes for significant net inflows, given the comparatively stable prices of bitcoin and ether before the ETF debut, questions remain about market mood.

Director of risk consulting at KPMG China Robert Zhan says that although big Chinese asset managers’ introduction of cryptocurrency-linked funds is exciting, meeting lofty goals could be difficult given the current state of the sector.

The introduction of cryptocurrency ETFs by Chinese asset managers indicates a rising interest in digital assets despite legal difficulties in the face of Beijing’s strict cryptocurrency laws.

Chief operating officer Donald Day of Hong Kong-based digital asset exchange VDX thinks these cryptocurrency ETFs may provide new investing opportunities in the quickly changing cryptocurrency market for active investors looking to get exposure to cryptocurrencies outside of US trading hours.

Hong Kong has several chances and problems in securing its place as a top financial centre for digital assets as it becomes a participant in the worldwide cryptocurrency ETF race.

Also, read: Hong Kong central bank against Cryptocurrency firms applying banking terms.

Stakeholders in the bitcoin ecosystem continue to be highly concerned about navigating regulatory frameworks and compliance requirements. Although Hong Kong has made an effort to provide precise rules for spot ETFs, regulatory compliance ambiguities and shifting regulatory environments may hinder market expansion.

Additionally, the dynamic nature of cryptocurrency markets—which is characterized by price volatility and hazy regulations—presents particular difficulties for investors and other market participants.

Hong Kong needs to set itself out in a very competitive global market if it is to draw in investors and establish itself as a top choice for bitcoin investment. Even though the introduction of spot ETFs is a significant step, Hong Kong’s competitive advantage will require ongoing innovation and the introduction of new financial products.

A conducive environment for digital asset innovation and investment requires cooperation between industry participants, regulatory authorities, and government agencies.

Making sure investors are educated and risk-managed is critical as interest in bitcoin investing increases. Promoting appropriate investing methods and protecting investor interests require educating investors on the special qualities of digital assets, including their inherent risks and possible rewards.

Furthermore, reducing the operational and legal risks connected to cryptocurrency investments requires strong risk management procedures and compliance controls.

Hong Kong can have a competitive edge and promote market growth by strategic alliances and cooperation inside the bitcoin ecosystem. Leading industry participants, financial institutions, and technology suppliers can be partnered with in Hong Kong to make use of their combined resources and experience to spur innovation and quicken market expansion.

Working with foreign partners can also improve Hong Kong’s worldwide connectivity and establish it as a centre for international cryptocurrency trades and investment operations.

Also, read: Hong Kong’s cryptocurrency exchange goes dark.

Hong Kong has to negotiate legal obstacles, set itself apart in a cutthroat industry, and give investor education and risk management top priority as it plots its route in the worldwide crypto ETF race.

Hong Kong, a world-renowned financial hub, may seize the chances given by the developing cryptocurrency industry and establish itself as a top financial centre for digital assets by encouraging strategic alliances, welcoming innovation, and upholding regulatory clarity.


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Kevin Odero
Kevin Odero
Kevin is a web3 and crypto enthusiast who writes about various developments and advancements of web3 as a whole, and how it affects Africa. When not writing he likes following technological advancements and reading as a hobby.