Hong Kong regulators approve spot Bitcoin and Ether ETFs

abdelaziz Fathi

Hong Kong-based asset managers received approval from regulators on Monday to launch spot Bitcoin and Ether ETFs.

The move signals a major expansion in the variety of cryptocurrency investment products now accessible in the region. Until now, the APAC market featured only futures-based crypto products.

The introduction of exchange-traded investment products for Bitcoin and Ether is expected to attract a new wave of investors to the crypto market. This shift comes as Bitcoin prices have risen 38% since similar U.S.-based funds launched earlier this year, though it is important to note that other factors also influence these price movements. Following the announcement in Hong Kong, both Bitcoin and Ether saw marginal gains, which later moderated.

As of the end of March, the global market for crypto exchange-traded funds reached $85 billion. This represents only a fraction of the broader $12.7 trillion ETF market, yet highlights the growing relevance of crypto-based financial products.

In the U.S., newly launched spot Bitcoin ETFs have quickly become major players in terms of net inflows, comparable to major broad market funds. These vehicles currently represent 0.68% of the total ETF market, amounting to $60.6 billion.

In contrast, the crypto ETF market in Hong Kong is currently valued at around $138 million, or just 0.3% of the local market. Analysts suggest that if Hong Kong’s market were to align proportionally with the U.S., it could potentially grow to approximately $311 million. Furthermore, they estimate that there is about $25 billion in untapped demand from mainland China investors eligible to invest in Hong Kong-listed shares through the Southbound Stock Connect program.

This milestone outpaces industry expectations, which expected such launches later in the year. The move was facilitated by regulators hastening the approval process to position the city as a pioneer in the region for embracing financial trading instruments linked directly to Bitcoin.

However, Bloomberg Intelligence analyst Eric Balchunas described this estimate as “insane,” highlighting the speculative nature of such forecasts.

The approval in Hong Kong also comes as the London Stock Exchange is gearing up to accept applications for similar products starting in May.

The Hong Kong divisions of China Asset Management and Harvest Fund Management recently received approval to manage portfolios with over 10% investment in virtual assets. Despite the ban on cryptocurrency trading in mainland China, offshore Chinese financial institutions have actively sought to partake in Hong Kong’s burgeoning crypto asset landscape.

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