(Bloomberg) — The Hong Kong government has given conditional approval to asset managers to launch spot Bitcoin and Ether exchange traded funds, a development that will boost both the tokens and the broader crypto market. said both companies.
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Harvest Global Investments Ltd. and its partnership with HashKey Capital Ltd. and Bosera Asset Management (International) Co. announced the initial approval in a separate statement on Monday.
China Asset Management's Hong Kong unit announced that it has received approval from the city's Securities and Futures Commission to provide virtual asset management services and is devoting resources to product development.
Hong Kong is competing with the likes of Singapore and Dubai to become a digital asset hub after introducing a dedicated regulatory regime last year. Authorities are trying to restore the city's reputation as a modern financial center after a crackdown on dissent eroded its appeal.
Listing approval pending
The SFC said that, subject to various conditions, the agency will issue a conditional approval letter for an ETF application if the application generally meets the requirements. The applicant will then apply for listing approval from the Hong Kong Exchange, the SFC added.
OSL Digital Securities said in a statement that it will provide custody services for China Asset Management and Harvest's Bitcoin and Ether products.
The cryptocurrency market has received a boost from the latest developments. Bitcoin rose 4.3% and Ether rose 6.5%. In Hong Kong, the tokens were trading at $66,232 and $3,253, respectively, as of 4:30 p.m. Monday.
Spot crypto ETFs have been gaining traction since Bitcoin funds from companies like BlackRock and Fidelity Investments debuted in the U.S. in January. These portfolios have attracted $12.5 billion in net inflows to date, and this demand pushed the largest digital asset to a record high of $73,798 in mid-March. It is unclear whether the US will approve a pending application to launch an ETF that directly holds the second-largest token, Ether.
Redemption in kind
Hashkey Capital and Vocera said Hong Kong spot ETFs have a physical subscription and redemption mechanism, where underlying assets and ETF units are exchanged and vice versa. This is in contrast to US funds, which operate on a cash redemption model.
Justin Danesan, head of Asia-Pacific business development at crypto market maker Keylock, said an in-kind approach “could be a smoother, cheaper process and could increase the appeal of Hong Kong products.” There is,” he said.
The big unknown is how much demand there will be for ETFs in the city. Hong Kong already allows futures-based crypto ETFs, with three listed so far: CSOP Bitcoin Futures, CSOP Ether Futures, and Samsung Bitcoin Futures. The companies have combined assets of about $170 million, a fraction of their U.S. counterparts.
Apart from ETFs, Hong Kong is considering a series of applications to expand its roster of licensed digital asset exchanges and is working on a stablecoin framework. Stablecoins are typically pegged 1:1 to fiat currencies and are typically backed by cash and bond reserves.
(Updated with more information about ETFs starting in the 7th paragraph.)
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