HK’s bitcoin and ether ETFs likely to lure Asian investors
Buyers hoping to avoid paying capital gains tax in US may be drawn to the city, analysts say
Hong Kong’s coming exchangetraded funds (ETF) that invest directly into cryptocurrencies could be attractive to many Asian investors, industry insiders say, but demand may still be a trickle compared with that in the United States.
The Securities and Futures Commission (SFC) on Monday gave the green light to multiple mainland fund houses and local virtual asset firms to move forward with their applications to offer ETFs that invest directly in bitcoin and ether, the world’s two largest cryptocurrency tokens.
The move, which came just a few months after Hong Kong regulators announced plans to allow spot cryptocurrency ETFs, was hailed as a major milestone in the city’s pursuit to become a virtual asset hub. It also gave the market a rare lead over the US, which has yet to make a decision on allowing spot ether ETFs.
“We can expect a healthy level of interest, especially with other Asian jurisdictions staying away from domestic spot bitcoin ETF issuance for now,” said Angela Ang, a policy adviser at blockchain analytics firm TRM Labs.
Spot bitcoin ETFs in the US, approved in January, were also available worldwide but many Asian investors might prefer to avoid opening a US investment account and paying the country’s capital gains tax, said Michael Wong, a partner at law firm Dechert.
“It’s just more convenient for Hong Kong investors or probably Asian investors generally who don’t want to open a US brokerage account,” Wong said.
Just having to fill out US tax forms could be a deterrent for some investors seeking exposure to bitcoin, according to Wong, who also said Hong Kong did not tax capital gains.
Hong Kong’s impending approval of bitcoin and ether ETFs was also a “milestone for the digital asset industry at large”, as it “creates an additional regulated avenue for price exposure to the asset class with the ability to trade within the Asian time zone”, said Chengyi Ong, head of Asia-Pacific policy at blockchain research firm Chainalysis.
Ong said the demand for price exposure to virtual assets was strong in Asia, which accounted for US$791 billion of the US$1.17 trillion of bitcoin traded in February this year, according to data by cryptocurrency news and data outlet The Block. North American investors traded US$113 billion in bitcoin that month.
Ultimately, though, demand for the Hong Kong products would come down to the size of the local market, the fees charged, and similar factors, Ong said.
“Expense ratio will definitely be something that investors will look at,” Dechert’s Wong said. “If you have a comparable or competitive expense ratio for [Hong Kong’s spot cryptocurrency] ETFs, then I’m sure it will be very appealing to a lot of investors.”
Others have been dismissive of the new products. Bloomberg senior ETF analyst Eric Balchunas said on X the offering was “child’s play” compared with similar products in the US because Hong Kong was a comparatively “tiny” market. “Don’t expect a lot of flows,” he wrote.
Firms planning to launch spot cryptocurrency ETFs in Hong Kong should now work on fulfilling other requirements before offering them, such as applying to list them on the local stock exchange, as they await the final approval from the SFC, according to the regulator.
Wong estimated the ETFs could launch by June.