After crypto ETF movement in Hong Kong, other Asia regulators could act

It appears ever more likely that fund issuers will launch crypto ETFs in Hong Kong very soon. This move could catalyze acceptance of such funds elsewhere, with some speculating that other regulators in Asia could be next to follow suit.

In the US, the Securities and Exchange Commission had held out on approving spot bitcoin ETFs for years, restricting investors from engaging with cryptocurrencies through regulated financial avenues. This barrier prevented the broader financial adoption and accessibility of blockchain assets.

That all changed in January when the SEC approved 10 spot bitcoin ETFs for trading on US exchanges. This approval not only marked a significant shift in policy but also led to approximately $12.5 billion in net inflows to these funds, demonstrating a robust market appetite.

Fast forward just weeks after the US bitcoin ETF approvals, to when the United Kingdom’s Financial Conduct Authority said it would support “recognized investment exchanges” listing physically backed bitcoin and ether exchange traded notes (ETNs) for professional investors.

The London Stock Exchange indicated that such listings could be expected by the end of May.

Now in Hong Kong, fund issuers have indicated in recent days that they are looking to launch spot bitcoin and ether funds soon.

HashKey Capital and Bosera International noted in a Monday post they had gained approval from Hong Kong’s Securities and Futures Commission to offer crypto-related asset management services.

A HashKey spokesperson declined to comment further.

A representative for Hong kong-based China Asset Management said the firm is planning to launch a spot bitcoin ETF and a spot ether ETF.

Still, issuers do not appear to have official approval to launch such funds. An SFC spokesperson did not immediately return a request for comment.

“Regarding the approval progress, we are currently not in a position to provide comment, as it is the decision of SFC,” the China Asset Management spokesperson told Blockworks in an email.

Developments in the UK and Hong Kong “reiterate the global ripple effect of the spot ETF approvals in the US,” according to Tim Bevan, CEO at crypto ETP issuer ETC Group.

Michael Silberberg, head of investor relations at Alt Tab Capital, added in a statement that the Hong Kong move was likely to attract more institutional investors. He believes that this would result in more liquidity and better price discovery.

“As other jurisdictions observe Hong Kong’s approach, it will likely encourage similar regulatory frameworks worldwide, further legitimizing bitcoin as an investable asset class and driving more growth in BTC and across the market,” Silberberg said.

Who’s next to approve such products?

While the US became the latest to approve spot bitcoin ETFs, other countries had beat them to it.

Canadian fund group Purpose Investments launched its spot bitcoin ETF on the Toronto Stock Exchange in February 2021 — the world’s first bitcoin ETF backed by physically settled bitcoin.

QR Asset Management launched Latin America’s first spot bitcoin ETF in Brazil in June 2021.

Europe’s first spot bitcoin ETF went live on Euronext Amsterdam last year, though crypto ETNs — debt instruments typically collateralized by the underlying exposure — had existed there for years prior.

Karim Saber, a research associate at crypto ETP issuer 21Shares, said Asia appears poised to take the lead in approving new spot bitcoin ETFs given higher-than-average crypto adoption rates in countries like South Korea, Japan and Singapore.

“The victory of the bitcoin-friendly South Korean opposition party in April’s election enhances the likelihood of the country approving BTC spot ETFs in the near future,” he told Blockworks.

The winning party had pledged to prioritize offering investors access to such products, Bloomberg reported earlier this month.

While South Korea’s recent political shift could lead to regulators approving a bitcoin ETF as soon as this year, Saber noted, Japan and Singapore might not be far behind.

The Government Pension Investment Fund (GPIF) of Japan said last month it was considering investing in “illiquidity assets” like bitcoin.

That came about a month after the Japanese government advanced a proposal that would allow investment limited partnerships to acquire and hold crypto assets.

A March survey of Singaporeans by Independent Reserve found that one-third of respondents would consider investing in an overseas spot bitcoin ETF.

While the Monetary Authority of Singapore has expressed concerns about retail access to spot ETFs, crypto adoption is evolving in the country.

Singapore app Grab, for example, allowed users to start making payments in BTC, ETH and stablecoins last month. The move highlights “the growing integration of cryptocurrencies into mainstream commerce,” Saber said.

“Therefore, we anticipate Singapore and Japan to increasingly pursue regulatory approval following South Korea,” he added. “The approval in Hong Kong could catalyze discussions this year as Asian countries vie for prominence as the next financial center for innovation.”

Bevan said he expects Japan and South Korea could approve such products in the next six to 12 months — noting that while timelines are hard to predict, “they are all playing catch-up with the US.”

Progress in the UK and Australia

The FCA’s change of stance related to United Kingdom-listed crypto ETNs currently applies to products accessible only to professional investors.

But the regulator’s cautious “phased approach” is likely a step toward retail access once it assesses the products’ impact with that “more informed participant base,” Mandy Chiu, head of financial product development at 21.co, previously told Blockworks.

Over in Australia, additional spot bitcoin ETFs could soon be available as well.

The Global X 21Shares Bitcoin ETF (EBTC) launched on Cboe Australia in May 2022. The fund provides holders an interest in bitcoin held in cold storage by Coinbase.

Asset manager Monochrome last year applied for Australia’s first fully-licensed spot bitcoin ETF under new regulatory guidelines. Monochrome CEO Jeff Yew previously told Blockworks that the proposed fund would be uniquely authorized under the country’s “crypto asset” licensing category, which allows the fund to hold bitcoin directly on the fund level.

It is unclear whether this distinction will attract investors to such a fund. The Global X fund has $93 million in assets under management after about two months on the market — a far cry from several of the much-younger US spot bitcoin ETFs.

“Monochrome expects to receive a positive response for the Monochrome Bitcoin ETF (IBTC) within a matter of weeks, not months,” Yew said.

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