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As Hong Kong’s ether ETFs face competition from the US, crypto investors may flock to the city
Hong Kong may face new challenges as its leadership in offering exchange-traded funds (ETFs) that invest directly in ether, the world’s second-largest cryptocurrency token, may soon disappear with the imminent launch of similar products in the much larger U.S. market, but the city may continue to attract a specific set of investors as it seeks to become a virtual asset hub.
The U.S. Securities and Exchange Commission (SEC) has given “preliminary approval” to some asset managers to launch their own spot ether ETFs, Reuters reported on Tuesday, citing unnamed sources. The regulator had previously allowed exchanges to list ether products in May, following the historic launch of a range of spot bitcoin ETFs on U.S. stock exchanges in January. Hong Kong was the first major financial market to approve spot ether ETFs, which launched on the city stock exchange along with spot bitcoin ETFs in April. By including ether in its crypto ETF approvals, Hong Kong was seen as having a unique advantage over the United States, if only for a short time. Since late 2022, Hong Kong has made a major push to attract crypto-related businesses to the city by offering regulatory clarity across several segments of the industry. Spot crypto ETFs are one of the latest moves, along with Stablecoin regulatory proposals which concluded the public consultation on Wednesday. Hong Kong Monetary Authority (HKMA) He said there is broad support for his proposals, which include licensing issuers of crypto tokens tied to fiat currency.
With ETFs, similar product offerings in the U.S. could overshadow those in Hong Kong, given New York’s much larger trading volumes. However, experts said Hong Kong could still benefit from the upcoming launch.
Spot ether ETFs in the US could increase awareness of Ethereum, the blockchain for ether, among Hong Kong investors, according to Deng Chao, CEO of HashKey Capital, a local cryptocurrency firm that has partnered with Chinese fund firm Bosera Asset Management to launch bitcoin and ether ETFs in the city.
In May, Hong Kong spot ETFs has seen the inflows increase in anticipation of approval of such products by the United States.
Despite being hailed as a major step in the city’s transformation into a virtual asset hub, Hong Kong’s spot cryptocurrency ETFs have mostly seen muted sales compared to U.S.-based Bitcoin ETFs.
But some say Hong Kong ETFs may still appeal to a narrower pool of investors, despite competition from big U.S. players.
“The Hong Kong market is likely to be attractive to a specific set of investors, including those who cannot or do not want to access the U.S. market for various reasons,” said Angela Ang, senior policy advisor at blockchain analytics firm TRM Labs.
Investors based in Asia who wish to avoid the hassle of opening a brokerage account in the United States and paying the country’s capital gains tax would prefer Hong Kong-listed products, analysts had previously told the PostThe city is now slowly moving forward with regulation of the sector, as the Securities and Futures Commission conducts on-site inspections of cryptocurrency exchanges deemed licensed, a requirement to continue operating in the city starting in June, and as the HKMA finalises its stablecoin regulations.
Several other factors, including investor interest, the results of cryptocurrency exchange audits and the regulatory path, are “probably more important than the launch of cryptocurrency ETFs in the U.S.,” Ang said.
U.S. stocks will “not backtrack on Hong Kong at all” if the city’s regulators continue to send positive signals and maintain a “welcoming climate for companies” in the digital assets sector, said Dan Tapiero, founder and CEO of U.S. venture capital firm 10T Holdings.