Hong Kong’s first spot bitcoin and ether ETFs get conditional approval as city stakes a lead on such products

Hong Kong has approved the launch of exchange-traded funds (ETF) that invest directly in bitcoin and ether, the world’s two largest cryptocurrency tokens, as the city looks to secure a leading position in the volatile virtual asset sector.

Mainland Chinese fund house Bosera Asset Management’s overseas arm and Hong Kong virtual asset firm HashKey Capital received “conditional approval” from the Securities and Futures Commission (SFC) to jointly launch spot crypto ETFs, the companies said in announcements published online on Monday.

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The SFC has not made any announcement on the ETFs, as none have been officially approved yet. The conditional approval allows applicants to move forward with preparations to offer the funds, such as applying to Hong Kong Exchanges and Clearing (HKEX) to offer them on the local stock exchange.

“The SFC issues a conditional authorisation letter to an ETF application if it generally satisfies our requirements, subject to various conditions, including fee payments, filing of documents and HKEX’s listing approval,” the SFC said in a statement to the Post, without clarifying the status of any spot crypto ETF applications.

Spot crypto ETFs are considered a boon for investors who want exposure to such assets without needing to worry about setting up their own blockchain wallets or other technical details that can be a hurdle. ETFs can also be included in things like retirement funds, making them more appealing to mainstream investors.

Since the US started allowing spot bitcoin ETFs this year, they have seen more than US$200 billion in trading volume, according to crypto news and data outlet The Block.

Bitcoin’s price has been surging since late last year, and especially after the US ETF approval in January. However, the price has fallen about 8 per cent in the past week to around US$66,700. After approving the spot ETF, SEC Chair Gary Gensler warned that bitcoin remains a “speculative, volatile asset”.

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The SEC has repeatedly delayed making a decision on ETFs that directly invest in ether, the native token of the Ethereum blockchain. It is expected to conclude its review in late May.

That makes the approval in Hong Kong, which normally trails the US in approving such financial instruments, look more ambitious as the city seeks to transform itself into a virtual asset hub.

While the Hong Kong market is relatively small, industry insiders say local spot crypto ETFs could be globally competitive because they allow for both cash and in-kind subscriptions – i.e. converting bitcoin or ether into their ETF equivalents. In the US, the products can only be purchased with dollars.

The in-kind arrangement offers benefits such as lower transactional costs and higher operational efficiencies, said Andrew Fei, a partner at King & Wood Mallesons in Hong Kong.

“The approvals of the first spot bitcoin and spot ether ETFs in Asia mark an important milestone in Hong Kong’s bid to become a global digital assets hub,” Fei said. “The strong crypto investor base in Asia, combined with the in-kind redemption feature and support for HK dollar trading, give these Hong Kong ETFs a real competitive edge.”

Additional reporting by Matt Haldane.