Author: Bowen, Pionex Lounge
When will the Hong Kong Bitcoin spot ETF be approved? Undoubtedly, it is the focus of the virtual asset market in Hong Kong today.
In the U.S. market, the market performance of Bitcoin spot ETF has proven to the world that it is only a matter of time before Bitcoin is integrated into traditional finance. According to SoSoValue data, as of April 11, the net asset value of Bitcoin spot ETF has reached 58.64 billion U.S. dollars, with a net asset ratio of 4.27%, and a cumulative net inflow of 12.49 billion U.S. dollars. As the most important channel for "old money" to enter the market, Hong Kong must accelerate the approval process to maintain its global regulatory advantage.
On April 10, according to Reuters, two informed sources said that the Bitcoin spot ETF may be launched in Hong Kong this month, and the first list may be announced as early as next week.
On the same day, Tencent Finance's "First Line" reported that the Securities and Futures Commission of Hong Kong plans to announce the first list of Hong Kong Bitcoin spot ETFs to the public on April 15. The entire early stage of the Bitcoin spot ETF project and the Hong Kong Stock Exchange have had detailed communication and planning in advance, and it is expected to be completed in about 10 days. The Securities and Futures Commission originally planned to list the Bitcoin spot ETF in Hong Kong around April 25, at the latest by the end of April.
What are the advantages of the Hong Kong Bitcoin spot ETF? Who will benefit from the first batch of Hong Kong Bitcoin spot ETFs? In this issue, Pionex Lounge will summarize the latest information and grasp the dynamics of the Hong Kong Bitcoin spot ETF.
Physical subscription and redemption may become the biggest advantage of the Hong Kong Bitcoin spot ETF
Unlike the Bitcoin spot ETF approved by the U.S. SEC, the Securities and Futures Commission of Hong Kong allows subscription and redemption in two ways: cash (in-cash) or physical (in-kind). For cash subscription and redemption, the fund must obtain virtual assets on a licensed exchange in Hong Kong, either through on-exchange trading or off-exchange trading; for physical subscription and redemption, virtual assets need to be transferred in or out of the fund's custody account through a broker.
In January 2024, the U.S. SEC only approved the issuance of Bitcoin spot ETF through cash subscription and redemption, with regulatory focus on reducing market volatility and the possibility of market manipulation. Although this can effectively reduce the risk of asset loss for investors, especially retail investors, it also indicates that the SEC still has great doubts about Bitcoin and intends to be ready to intervene at any time by maintaining traditional financial means.
The regulatory uncertainty in the United States has instead given Hong Kong the opportunity to continue to leverage its regulatory advantage. By establishing a clear regulatory framework, the Hong Kong government can effectively regulate the participants in various important aspects of the Bitcoin spot ETF, which has a significant promoting effect on increasing investor confidence in the market. On the other hand, the method of physical subscription and redemption is also more advantageous in terms of increasing liquidity and price discovery, providing more diversified choices for institutions still seeking risk exposure.
The government and practitioners in the Hong Kong market are undoubtedly unwilling to miss this rare opportunity to attract "old money." The schemes that need to be met for the submission of Bitcoin spot ETF in Hong Kong this time have involved 20 cooperating institutions, including but not limited to Bitcoin custodians, market makers, and institutions holding comprehensive accounts for trading virtual assets. Some institutions are still actively preparing applications to "get on board," while there are also a group of early "departures" that have the potential to become the biggest winners after the first batch of Hong Kong Bitcoin spot ETFs are approved.
4 institutions have preemptively entered the issuance list
On April 10, according to Tencent Finance's "First Line," the Securities and Futures Commission of Hong Kong originally planned to approve a total of 4 Bitcoin spot ETFs in the first batch, with the issuers being JPMorgan, Huaxia Fund, Bosh Fund, and Wisdom Financial.
According to the official website of the Securities and Futures Commission, JPMorgan Asset Management Company (referred to as JPMorgan) and Huaxia Fund (Hong Kong) Limited (referred to as Huaxia Fund) have obtained a virtual asset license approved by the Securities and Futures Commission, which can manage a portfolio that is 100% invested in virtual assets. Bosh Fund and Wisdom Financial have not yet appeared in the list of virtual asset management funds. It is reported that the two funds themselves do not have independent ROs that meet the standards for managing virtual asset industry assets, so the two institutions have chosen to cooperate with Hashkey Capital and VSFG to issue Bitcoin spot ETFs.
The latest information from JPMorgan and Huaxia Fund was updated on the official website of the Securities and Futures Commission on the early morning of April 10. Some industry insiders believe that this move is also understood as the Securities and Futures Commission preparing to announce the first batch list on time on April 15.
JPMorgan becomes the first applicant
JPMorgan announced on January 26, 2024, that it has become the first applicant for the Hong Kong Bitcoin spot ETF. JPMorgan Asset Management Company Limited is a wholly-owned subsidiary of JPMorgan Fund Management Company, established in 2008. In recent years, it has focused on integrating environmental, social, and governance (ESG) factors, committed to incorporating ESG considerations into investment strategies, and has achieved corresponding results.
As of 2023, JPMorgan Asset Management has managed assets exceeding 200 billion U.S. dollars, with public funds generating returns exceeding 30 billion U.S. dollars, and a research team of over 300 people. With the continuous implementation of virtual asset-related regulations in Hong Kong, JPMorgan has actively responded and joined the wave of innovation.
As early as December 28, 2023, JPMorgan successfully completed the issuance of the first tokenized fund in Hong Kong. The fund completed its filing with the Hong Kong regulatory authorities in November 2023. The fund is only available to professional investors and invests in high-rated U.S. bonds. JPMorgan Asset Management, as the fund manager, provided a tokenization solution through Meta Lab HK. On April 10, 2024, according to the official website of the Securities and Futures Commission of Hong Kong, JPMorgan successfully upgraded its virtual asset license, completing the regulatory preparations. JPMorgan is one step closer to successfully issuing the Bitcoin spot ETF.
JPMorgan's strong capital and experience in issuing tokenized funds can be a powerful advantage. Tokenization has gradually become a global trend in finance, not only in Hong Kong. Whether JPMorgan will make tokenization innovations in the issuance of the Hong Kong Bitcoin spot ETF has become one of the biggest highlights for JPMorgan.
Huaxia Fund gradually improves its Web3 layout
Huaxia Fund Management Co., Ltd. is one of China's earliest national fund management companies, established on April 9, 1998, with its headquarters in Beijing. With public funds and institutional business as its core, it has formed a diversified asset management platform, including subsidiaries such as Huaxia Fund Hong Kong, Huaxia Capital, and Huaxia Wealth.
As of the end of 2023, Huaxia Fund's managed assets reached 1.82 trillion yuan, approximately 250 billion U.S. dollars, including the total assets under management of public funds, institutions, and international business; among them, the scale of public fund management is 1.32 trillion yuan, while the scale of institutional and international business asset management is 505.92 billion yuan.
Huaxia Fund and HashKey Exchange Sign MOU for Web3 Innovation
On November 20, 2023, Huaxia Fund Hong Kong announced through its official public account that it had signed a memorandum of understanding with HashKey Exchange, a licensed retail virtual asset exchange in Hong Kong, and Hamsa, a physical asset tokenization company, to explore Web3 innovation in the asset management industry in Hong Kong. This move is seen as a positive signal that Huaxia Fund will launch a Hong Kong Bitcoin spot ETF. Additionally, Huaxia Fund's successful upgrade to manage a portfolio that is 100% invested in virtual assets further confirms this speculation.
Huaxia Fund has not yet responded to the application for the Hong Kong Bitcoin spot ETF, and the market continues to await the final list from the Securities and Futures Commission.
Wisdom Financial Group and VSFG Join Forces to Enter the Bitcoin Spot ETF Market
Unlike Huaxia Fund, Wisdom Financial Group and VSFG have responded positively to the application for the Bitcoin spot ETF. On January 29, 2024, VSFG announced its plan to become the first financial institution to issue a Bitcoin spot ETF in Hong Kong. However, its actual progress has been slightly behind that of JPMorgan International. On March 27, 2024, asset management company VSFG announced that it had partnered with Wisdom Financial Group to formally submit an application for the Bitcoin spot ETF to the Securities and Futures Commission of Hong Kong, with the initial hope that the assets under management (AUM) could reach 500 million U.S. dollars (approximately 3.9 billion Hong Kong dollars) by the end of this year.
VSFG, including VSFG Asia and VSFG Asset Management, is licensed by the Securities and Futures Commission to conduct regulated activities of Type 1 (dealing in securities), Type 4 (advising on securities), and Type 9 (asset management).
Wisdom Financial Group, established in 1993, is one of the largest independent asset management companies in Asia. In 2007, it was listed on the Hong Kong Stock Exchange, becoming the first asset management company to be listed on the main board. Additionally, Wisdom Financial Group is one of the first fund companies in Hong Kong to obtain the Qualified Domestic Limited Partner (QDLP) qualification.
Bosh Fund and HashKey Capital Collaborate to Enter the Market
Bosh Fund Management Co., Ltd., established on July 13, 1998, is one of the first five fund management companies established in mainland China, with its headquarters in Shenzhen. As of December 31, 2023, Bosh Fund managed a total of 367 public funds and was entrusted by the National Social Security Fund Council to manage part of the social security fund, as well as multiple enterprise annuities, occupational annuities, and specific accounts, with total managed assets exceeding 1.4668 trillion yuan, approximately 200 billion U.S. dollars.
On April 6, 2024, Bosh International Asset Management Company and HashKey Capital, a financial technology group, signed a strategic cooperation agreement to explore compliant financial products and jointly commit to the combination of Web3 and traditional finance. The collaboration will mainly focus on areas such as virtual asset spot ETFs, blockchain technology, and financial technology.
Bosh Fund has not yet responded to the application for the Hong Kong Bitcoin spot ETF. Although Bosh Fund has not yet obtained a virtual asset license in Hong Kong, its collaboration with HashKey, which has gradually become a key player in the Hong Kong market, has attracted more market attention to its future performance.
Victory Securities Gains a Clear First-Mover Advantage
Since the announcement of the new virtual asset regulations in Hong Kong, Victory Securities has achieved many accomplishments. In anticipation of the upcoming Bitcoin spot ETF opportunity, Victory Securities has made sufficient preparations to respond and conduct its business.
In 2023, Victory Securities was the first to obtain licenses for virtual asset-related businesses, including Type 1 (virtual asset trading), Type 4 (virtual asset advisory services), and Type 9 (virtual asset management services). Having all the necessary licenses has given Victory Securities a unique first-mover advantage. According to the requirements of the Securities and Futures Commission, if the Bitcoin spot ETF adopts physical subscription and redemption, virtual assets need to be transferred in or out of the fund's custody account through a broker. Among the qualified brokers, Victory Securities has achieved remarkable results in brand marketing, making it the most reputable and attractive choice for "old money" seeking to enter the market.
Additionally, Victory Securities has developed its own trading app, VictoryX, which covers a wide range of markets and is the first broker in Hong Kong to be approved for coin-to-coin transactions by the Securities and Futures Commission.
Victory Securities Executive Director Chen Peiquan stated at the app's release, "In recent years, investors' demands for trading platforms have been continuously increasing. Victory Securities has spared no expense to create the market's exclusive stock and coin trading app. With the approval for coin-to-coin transactions by the Securities and Futures Commission, Victory Securities is expected to achieve greater success in the virtual asset field. The successful development of this app by our in-house research and development team not only marks a significant step forward for Victory Securities in financial technology but also signifies the determination of this long-established Chinese-funded brokerage to innovate and strive to become the most influential virtual asset broker in Hong Kong and even the Asia-Pacific region."
Victory Securities is well-prepared in its role as a broker, and its first-mover advantage is enough to secure a place in the market for the first batch of Hong Kong Bitcoin spot ETFs.
HashKey Continues to Lead in Hong Kong
HashKey continues to play a pivotal role in the virtual asset market in Hong Kong and will be fully involved as the custodian for the first batch of Hong Kong Bitcoin spot ETFs.
According to The Block, on April 12, 2024, HashKey Exchange CEO Xiaoqi Weng stated that the fund issuer collaborating with HashKey has finalized the development of the Bitcoin spot ETF. HashKey will provide infrastructure support for the ETF and has entered the "integration and functional testing" phase.
"HashKey provides underlying infrastructure support, covering trading, custody, and SSA. HashKey's own custody business has been operating steadily for over a year, with assets under custody amounting to over 2.2 billion Hong Kong dollars (approximately 280.7 million U.S. dollars)."
On March 21, 2024, HashKey announced comprehensive support for the Hong Kong Bitcoin spot ETF. HashKey Exchange will collaborate with mainstream traditional custodians to support the custody and trading business of virtual asset spot ETFs, while ensuring the security and reliability of the assets.
Additionally, HashKey Exchange has expressed plans to apply for a Type 13 regulated activity license (providing custody services for related collective investment schemes).
On March 25, according to Hong Kong media reports, HashKey, as a licensed custodian, has collaborated with over 10 brokerage firms to prepare for the spot ETF. On March 28, HashKey Exchange reached a collaboration with Victory Securities, where Victory Securities will open an account and purchase virtual assets on HashKey Exchange, and HashKey Exchange will provide institutional virtual asset custody services to Victory Securities. Additionally, both parties will provide virtual asset management solutions to investors through an omnibus account.
In addition to custody, HashKey is also preparing to personally participate in the issuance and management of the Bitcoin spot ETF. On April 11, HashKey Capital announced that it had obtained an exemption for qualified investor clauses in its existing asset management (Type 9) license from the Securities and Futures Commission of Hong Kong. In the future, HashKey Capital Limited will be able to provide fund products related to virtual assets to retail investors (specific products subject to final approval by the SFC). The license upgrade for HashKey Capital brings new product categories and will also enable it to reach a larger group of investors. The license upgrade will also better facilitate the strategic cooperation between HashKey Capital and Bosh International.
The Hong Kong Market, Just Getting Started
The Bitcoin spot ETF is a crucial step in the Hong Kong virtual asset market, opening the door for "old money" and signaling the formal integration of traditional finance and Web3 finance. It also signifies the departure from the preparatory stage to the eve of the explosion in the construction of Hong Kong as the world's Web3 financial center.
In the escalating Hong Kong battlefield, the cost of time will be the most important factor. The earlier the comprehensive layout and preparation, the more likely to emerge as the ultimate winner.
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