The launch of Bitcoin and Ethereum ETFs in Hong Kong has not generated the same excitement that was seen in the U.S. The first day trading volume was much lower at approximately $12 million compared to $4.6 billion in the U.S. Hong Kong's approach to crypto regulation also remains independent of U.S. influences, even as the U.S. SEC considers Ethereum a security, potentially impacting its own ETF approvals. This regulatory independence is seen as a positive step for attracting mainland Chinese investors.
Hong Kong’s Crypto ETFs Struggle to Match U.S. Market Debut
The launch of Bitcoin and Ethereum exchange-traded funds (ETFs) in Hong Kong has unfortunately not been met with a lot of enthusiasm. On their first day of trading, the six new cryptocurrency ETFs in Hong Kong collectively reached a total trading volume of 87.58 million Hong Kong dollars, or approximately $12 million. This number is way lower when compared to the $4.6 billion recorded on the first day of Bitcoin ETF trading in the U.S.
Among the six ETFs, those managed by China Asset Management (CAM), Harvest Global, Bosera and HashKey showed varied performance. The Bosera HashKey Bitcoin ETF had a trading volume of HK$249,000, and its Ether counterpart logged HK$99,000 by the closing bell. In contrast, the CAM Bitcoin ETF performed better, achieving HK$4.6 million in trading volume, with both the opening and closing prices hovering around HK$8.080 and HK$7.950 respectively. The CAM Ether ETF mirrored this performance with a very similar trading volume.
The initial subscription phase for CAM's Bitcoin and Ethereum spot ETFs attracted a lot of interest, with investments totaling $140 million. This initial enthusiasm, however, did not fully translate into big trading volumes after their market debut.
The Hong Kong Stock Exchange (HKEX) also received strong investor interest in its cryptocurrency futures ETFs, which were launched in late 2022. These futures ETFs drew $529 million in net inflows in the first quarter of 2024.
Hong Kong Ignores US Security Debate
As regulatory debates in the United States continue about the classification of cryptocurrencies, Hong Kong's ETF issuers seem unfazed by the potential classification of Ethereum as a security. On Apr. 29, just before the launch of Hong Kong's first spot crypto ETFs, Zhu Haokang from China Asset Management and Wayne Huang from OSL Digital Securities addressed the implications of U.S. regulatory actions for Hong Kong's market.
During the press conference, Huang clarified that the Hong Kong Securities Regulatory Commission operates independently of U.S. regulatory frameworks. He also stated that the decision of the U.S. to possibly label Ethereum as a security will not influence Hong Kong’s regulatory approach. The Hong Kong Securities and Futures Commission follows its own procedures to determine the status of crypto assets and their accessibility to retail investors, ensuring that decisions are made independently of international disputes or definitions.
Huang also made sure to point out the advantages of Hong Kong's regulatory clarity compared to the United States, where multiple agencies are involved in the regulation of cryptocurrencies, often with overlapping or conflicting views. He was also very proud of the fact that Hong Kong is set to be the first in the world to launch a spot Ethereum ETF, a clear message that Hong Kong does not consider Ethereum to be a security.
SEC Considered ETH a Security for at Least a Year
Interestingly, recent court documents revealed that the U.S. Securities and Exchange Commission (SEC), led by Chair Gary Gensler, has actually considered Ether a security for quite some time. This revelation came to light after a lawsuit filed by Ethereum software company Consensys against the SEC. Fox Business producer Eleanor Terret reported that according to these documents, the SEC believed Ether was trading out of compliance with federal regulations as an "unregistered security."
The escalation followed a Wells notice from the SEC, leading Consensys to file an unredacted complaint in a Texas federal court on Apr. 25. This action revealed that on Mar. 28, 2023, Gurbir Grewal, the head of the SEC’s Division of Enforcement, authorized a formal investigation into Ether's status as a security, dubbed the "Ethereum 2.0" investigation. This probe allowed enforcement staff to subpoena parties involved in Ether transactions under strict confidentiality.
This investigation was a major shift from previous SEC positions under former Chair Jay Clayton, where the then-Director of Corporation Finance Bill Hinman indicated that Ether, like Bitcoin, was not considered a security. The ongoing investigation by the SEC suggests a reevaluation of Ether's classification, which could have huge implications, particularly as the SEC deliberates on the approval of a potential spot Ether ETF in the U.S.
Opening Doors
Despite all of the drama surrounding the SEC and Ethereum, Hong Kong is still very optimistic about the possibilities for the new ETFs. Many people predict that the newly launched ETFs will attract Chinese investors looking for alternative investment avenues.
According to Yimei Li, the CEO of China Asset Management, one of the three firms that launched crypto ETFs on Apr. 30, this move could open up opportunities for mainland Chinese investors holding renminbi (RMB).
During an interview with Bloomberg TV, Li expressed hope that the ETFs would provide a new opportunity for mainland investors to engage in the market. However, crypto trading is still prohibited in mainland China, and currently, only Hong Kong residents can invest in these new ETFs.
Samson Mow, the CEO of Jan3 and a well known Bitcoin advocate, also mentioned the major long-term potential of these ETFs for the region, especially considering the very limited investment options available to Chinese investors.
For now, the ETF investment opportunities are limited to qualified investors from Hong Kong, including institutional and retail investors, as well as international investors who comply with local regulations.
SBI Group Leads Blockchain Innovation in Japan
Other Asian countries are also embracing crypto and the technology behind it. SBI Group will become the first company to adopt the XRP Ledger (XRPL) blockchain solutions for supply chains in Japan. Ripple announced that it entered a strategic partnership with Tokyo-based consulting firm HashKey DX. HashKey DX will work closely with Ripple and SBI Ripple Asia, a joint venture between SBI Holdings and Ripple, to develop and deploy blockchain-driven supply chain finance tools.
Andy Dan, the head of HashKey DX, praised the XRPL for its proven enterprise capabilities, specifically pointing out its fast settlement speeds, low costs, and scalability as crucial for developing their supply chain finance solution. Over the past few years, HashKey Group successfully implemented similar blockchain solutions in mainland China, facilitating over $7 billion in trade and nearly $3 billion in financed transactions through its platform.
During the Paris Blockchain Week, RippleX's senior vice president, Markus Infanger, talked about the broader potential of blockchain technology. He even predicted that tokenized markets could eventually surpass $16 trillion.
Infanger also pointed out the increasing interest from traditional finance (TradFi) sectors in using blockchain networks not just for centralized solutions but also decentralized platforms like XRPL, Stellar, and Ethereum. He mentioned that many financial institutions are actively exploring tokenization projects to issue assets on the XRP Ledger.
