City to launch spot bitcoin and ether ETFs next week
Approval of such products is likely to cement Hong Kong’s role as a hub for virtual assets
Hong Kong will launch its first spot bitcoin and ether exchangetraded funds (ETFs) on Tuesday, cementing the city’s role as a virtual asset hub, in contrast to the mainland’s crackdown on cryptocurrencies.
The Securities and Futures Commission (SFC) has given the approval to both retail and institutional investors to directly invest in bitcoin and ether, the world’s two largest cryptocurrency tokens, making the city the envy of the underground investor community on the mainland where bitcoin trading and mining activities are banned.
The first batch of Hong Kongbased approved ETFs are managed by mainland fund managers Harvest International and China Asset Management, with a jointly managed product offered by the mainland’s Bosera Asset Management and Hong Kong virtual asset firm HashKey Capital.
“With the growing adoption of ETFs in institutional asset allocation and retail trading in Hong Kong, we expect robust demand for our offerings,” said Thomas Zhu, head of digital assets and family office business at China Asset Management.
The SFC’s go-ahead for spot bitcoin and ether ETFs makes Hong Kong the first jurisdiction in Asia to approve such products, and it comes after the US Securities and Exchange Commission gave the nod to spot bitcoin ETFs in January.
There has been more than US$200 billion in trading volume for the US bitcoin ETFs, according to The Block, a cryptocurrency news and data outlet.
Unlike US bitcoin ETFs that can only be bought with US dollars, Hong Kong allows in-kind creation models, which enable direct exchange of cryptocurrencies for ETF shares.
“The in-kind subscription and redemption mechanism increases the flexibility and inclusiveness of virtual asset spot ETFs, and it has certain arbitrage space, which is favourable to not only cryptonative investors, but also traditional financial investors,” said Jason Jiang, a senior researcher at OKG Research.
Jiang warned in-kind creation models would increase investment risks because of the complexity of the process that involved the custody and conversion of bitcoin and ether ETFs. But he said “Hong Kong has established a relatively comprehensive regulatory system” that was capable of dealing with the relative risks.
This could attract the larger group of traditional stock investors in Hong Kong and Asia TONY TONG, HONG KONG BLOCKCHAIN ASSOCIATION
The SFC’s approval for spot ether ETFs had “put Hong Kong ahead of the US and other regions”, giving it “a first-mover advantage”, said Tony Tong, co-chairman of the Hong Kong Blockchain Association.
“I believe this could attract the larger group of traditional stock investors in Hong Kong and Asia to enter the crypto investment, starting with spot bitcoin and Ethereum ETFs,” Tong said.
Mainland investors will possibly be unable to take part because of Beijing’s restrictions on cryptocurrency trading.
Prosecutors from the United States want Zhao Changpeng, founder and former chief executive of Binance, the world’s largest cryptocurrency exchange, to serve three years in prison after he pleaded guilty to violating laws against money laundering.
They made the request in a filing in a Seattle federal court on Tuesday night.
The prosecutors said sentencing Zhao to twice the maximum 18 months recommended under federal guidelines would reflect the magnitude of his wilful violations and send a message that “the right choice, every time, is to comply with the law”.
Lawyers for Zhao requested probation. US District Judge Richard Jones is expected to sentence Zhao on Tuesday.
Once the most powerful figure in the cryptocurrency industry, Zhao stepped down as Binance’s CEO last November when he and the exchange admitted to evading anti-money-laundering requirements under the Bank Secrecy Act.
Binance agreed to a US$4.32 billion criminal penalty.
Prosecutors said Binance, employing a “Wild West” model that welcomed criminals, did not report more than 100,000 suspicious transactions with designated terrorist groups including Hamas, al-Qaeda and Islamic State of Iraq and Syria, or Isis.
They also said Zhao’s platform supported the sale of child sexual abuse materials and was a recipient of a large portion of ransomware proceeds.
“He made a business decision that violating US law was the best way to attract users, build his company and line his pockets,” prosecutors said.
In seeking leniency, Zhao’s lawyers cited the first-time offender’s “unflinching” acceptance of responsibility and his US$50 million criminal fine and said no defendant in a remotely similar case had been imprisoned.
They also said Zhao made Binance an industry leader on compliance “despite the initial failures that led to this prosecution”.
Zhao founded Binance in 2017.
He has been free on a US$175 million bond and agreed not to appeal any sentence within federal guidelines.
Binance’s penalty included a US$1.81 billion criminal fine and US$2.51 billion of restitution. Zhao also paid US$50 million to the US Commodity Futures Trading Commission, his lawyers said.