Important moment in Hong Kong’s financial history: Bitcoin ETF Officially Launched on HKEx

On April 30, the Hong Kong Bitcoin Spot ETF and Ether Spot ETF will officially land on the Hong Kong Stock Exchange. The first trading day will be launched.

Earlier, Huaxia Fund (Hong Kong), Harvest International and Bosera International announced that the first batch of Hong Kong Bitcoin Spot ETF and Ethereum Spot ETF products applied for by the three fund subsidiaries have been approved by Hong Kong’s Securities and Futures Commission and will be launched on April 29 and listed on the Hong Kong Stock Exchange on April 30, Caixin News Agency reported.

This is the first time such products have been launched in the Asian market, and both products aim to provide investment returns (before fees and expenses) that closely mirror the spot price of bitcoin and ethereum. According to the industry, the launch of the Asian Spot Bitcoin and Ethereum ETFs provides retail and institutional investors with a safe, efficient and convenient vehicle for allocating digital assets.

The move has been described as a major moment in Hong Kong’s financial history.

Yesterday, ChinaAMC Funds (Hong Kong) Limited held a press briefing on “Asia Premiere – Spot ChinaAMC Bitcoin ETF and Spot ChinaAMC Ethereum ETF”. In this press briefing, Mr. Zhu Haokang, Head of Digital Asset Management and Head of Family Wealth of ChinaAMC Funds (Hong Kong), and Mr. Wayne Huang, Head of ETF and Custody of OSL, answered the following questions.
Mr. Zhu Haokang, Head of Digital Asset Management and Head of Family Wealth of ChinaAMC Hong Kong, said that he is very confident that the size of the initial listing of the Hong Kong Virtual Asset Spot ETF (more than US$125 million) will exceed the size of the first day of the U.S. offering. The 10 U.S. issuers of U.S. Bitcoin Spot ETFs had a first day offering of US$125 million on January 10th of this year. Wachovia is confident that it will be the largest ETF issuer among the three issuers and will announce this at 9:30 am today.

Below is the Q&A. Organized and compiled live by Foresight News. For readers’ reference

Q: What is ChinaAMC (HK)’s view on the amount of capital inflow on the first day of listing and trading of cryptocurrency ETFs in Hong Kong tomorrow?

Haokang Zhu: We are very confident that the size of Hong Kong’s virtual asset spot ETF IPO debut (over $125 million) will exceed the size of the first day of issuance in the U.S., where the 10 U.S. bitcoin spot ETF issuers had a first day of issuance of $125 million on January 10th this year. ChinaAMC is confident that it will be the largest ETF issuer out of the three, and we’ll find out tomorrow morning at 9:30 am.
Wayne Huang: There will be an announcement tomorrow morning at 9:30am on the HKEx, but OSL has completed its first day of initial fundraising on OSL today with two funds (including Huaxia and another fund we’ve partnered with) and we’re looking at the numbers and it looks like it’s much larger than the inflows from the U.S. Bitcoin Spot ETF on its first day of trading.

Q: What is the difference between Spot Huaxia Bitcoin ETF and Spot Huaxia Ether ETF and other ETFs?

Haokang Zhu: The first difference is that compared to the U.S. spot Bitcoin ETF, we have both spot and physical subscriptions and redemptions, which the U.S. spot Bitcoin ETF does not have.

In addition, ChinaAMC’s product is different from the other two in two ways: ChinaAMC’s Hong Kong Spot ETF is the only ETF with Hong Kong dollar, US dollar and RMB counters, and secondly, we have unlisted shares in addition to listed shares. These two points are not available in the other two.

Q: Apart from Hong Kong, where else have investors participated in the Hong Kong Virtual Asset Spot ETF?

Haokang Zhu: Thanks to the in-kind subscription method, firstly, investors, including bitcoin miners, can use their bitcoin holdings to directly purchase the Hong Kong virtual asset spot ETF, and secondly, we have also reached a large number of investors who are very interested in countries outside of Hong Kong that do not have ETFs in circulation at the moment, such as Singapore, the Middle East, and so on. In addition, although the US spot Bitcoin ETF market is currently very large, Hong Kong’s cash and in-kind subscription and the fact that it is open for trading during Asian trading hours will still attract many US investors compared to the US. Finally, a number of family offices in Asia and overseas are also very interested in spot crypto ETFs.

Q: Is Victory Securities the only brokerage firm that is eligible to trade in physical subscriptions?

Wayne Huang: Victory Securities is not the only one that can do physical subscription, with OSL’s support, China Victory Securities can also do it, so currently there are three brokers that can do physical subscription, and more will follow later. So after the ETF is listed tomorrow, a lot of brokers will follow up, and it’s possible that more brokers will participate in the whole ecosystem of virtual asset ETFs in May.

Q: How does physical subscription work?

Wayne Huang: Physical subscription is one of the innovations of Hong Kong ETFs, which is different from US ETFs. First, it requires a brokerage firm to upgrade its No. 1 license to handle virtual asset transactions, and then investors can transfer their coins to OSL through the brokerage firm, and then finally transfer the shares to the fund’s custodian account to complete the whole process of physical subscription.

Q: What is OSL’s anti-money laundering process for physical subscription? Can we accept the counterparty as the wallet of the other exchange?

Wayne Huang: First of all, the investor must open an account with OSL through a brokerage connection, we will do a whitelist verification on the wallet that will play coins in to prove that this wallet is owned and controlled by this investor, and secondly, we will do some screening on the investor’s private wallet to see if there are any suspicious transactions in the wallet’s past dozens of transactions on the chain, and only wallets that have passed the whitelist verification will be allowed to play money in. The wallet that passes whitelist verification will be the one that allows the investor to withdraw funds.

Can a wallet actually be a wallet from another exchange? Theoretically it is possible. If the anti-money laundering rules of the other exchange are consistent with the OSL rules, we can accept coins from the other exchange, but we need the other exchange to provide certain customer information.

Q: Can Hong Kong’s spot cryptocurrency ETFs be opened to mainland investors? Or will there be a possibility to open it to mainland investors in the future?

HaoKang Zhu: At present, mainland Chinese investors are not allowed to invest in Hong Kong’s cryptocurrency spot ETFs, while Hong Kong’s qualified investors, institutional investors, retail investors and international investors who meet the requirements are allowed to invest in cryptocurrency spot ETFs, and you can consult with brokerage firms and distribution channels, and continue to pay attention to whether there are any corresponding regulatory adjustments or specific regulatory frameworks to be introduced in the future.

Q: Hong Kong’s Ether Spot ETF is the first of its kind in the world, but if the U.S. finally decides that “Ether” is a security, will it affect Hong Kong’s Ether Spot ETF?

Wayne Huang: No, it should not, because whether or not the US defines Ether as a security does not affect an independent decision of the SFC in Hong Kong. The SFC in Hong Kong has its own process for determining whether a virtual asset is a security and whether it can be opened up to retail traders, and it’s not going to be affected by differences of opinion between the various departments in the U.S. or ultimately their own unilateral definitions of what is legally defined as a security in Hong Kong.

I would also like to emphasize why Hong Kong can be the first in the world to release an Ether Spot ETF and not the US? In the US, there are multiple departments that are either speaking out or trying to regulate cryptocurrencies at the same time. In Hong Kong, who should regulate cryptocurrencies has already been decided a long time ago, that is, the SFC should regulate it, and the SFC has already given a very clear regulatory framework, and Hong Kong has already had a clear definition of Ether, which is not a security, but is the earliest non-security virtual asset that is included in Hong Kong’s regulation together with Bitcoin, and it is one of the two underlying assets that can be provided to retail investors for trading.

Q: Will Hong Kong launch ETFs for other virtual assets?

Wayne Huang: Only Bitcoin and Ether for now. We have repeatedly discussed with the SFC the process of how to trade coins in Hong Kong in a compliant manner, and I’ll briefly share, first of all, we need the issuer of the virtual asset or ourselves to find a legal opinion, stating that the coin is a security or a non-security, and to turn the legal opinion as well as our due diligence on the coin into a detailed research report to be submitted to the SFC, and then ultimately, after the approval of the SFC, the ETF will first be opened to professional investors. After the final approval by the SEC, the coin will first be opened to professional investors, and when it reaches a certain level of liquidity and is included in the scope of an index for a period of time, we can then apply to the SEC to upgrade the coin to be able to be traded by retail investors.

But so far, after 4 years of operation, OSL still only has two assets, Bitcoin and Ether, that can be opened to retail trading, which means that for the time being, only these two coins are eligible to launch ETFs, but we have been discussing and researching this with the SEC.

Q: Will you consider launching inverse leverage ETFs for virtual assets?

Mr. Zhu Haokang: ETF itself is full of financial attributes, and financial attributes involve a lot of innovation in financial products, and we have also seen some international investment banks do some financial innovation and similar derivatives development on the existing US products. We are also paying close attention and communicating with a large number of investment banks and brokerages. To take a simple example, the Hong Kong Stock Exchange also allows ETFs to be shorted, and even to do financing and securities financing, and we are also communicating with our partners to create more income and more financial product innovations for our ETF investors.

Q: How do you see whether cryptocurrency ETFs will affect cryptocurrency prices next?

Mr. Zhu Haokang: We believe that cryptocurrency ETFs will benefit cryptocurrency prices based on a number of factors. First, the crypto spot ETF market in Hong Kong injects more liquidity into the crypto market. Second, it accelerates the compliance of the industry. Third, it expands funding channels. Fourth, investors may brine arbitrage opportunities between ETF prices and spot prices, allowing more market makers and arbitrage investors to actively participate. Fifth, with the adoption of our crypto spot ETFs, the trading factors of the traditional market will also have a direct impact on the cryptocurrency market. Sixth, we believe that Hong Kong’s regulatory framework is relatively clear, and the issuance of bitcoin and ethereum ETF products provides great convenience. Seventh, we believe that Hong Kong’s status as an international financial center will be more attractive to Chinese investors to trade in Asian timeframes, improve market liquidity, and perform better than similar products in Europe or Canada.

Q: ChinaAMC’s rates are higher than the other two Hong Kong firms, is there a concern about lack of competitiveness?

Mr. Zhu Haokang: I think people are more concerned about the fees. First of all, the fee structure of ChinaAMC Hong Kong fully follows the standards of theme-based and complex ETFs listed in Hong Kong, and you can refer to the fees of cryptocurrencies, futures ETFs and various theme-based ETFs listed in the past. Our fees are lower than those in the same category. Secondly, our products offer a very high degree of flexibility in terms of trading options, so that not only do they support both listed and unlisted shares, but also all three types of over-the-counter trading in US dollars, Hong Kong dollars and Renminbi, which is a unique advantage for us. The third point is that the complexity and innovation of our products determine the importance of our risk management and operational stability.

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