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Bitcoin and Ethereum Spot ETFs Approved for Listing in Hong Kong

On Wednesday, April 23, the Hong Kong market witnessed a major milestone in the virtual asset field. Three asset management companies—Huaxia Fund, CSOP Asset Management, and Bosera Fund—successfully obtained approval to issue Bitcoin and Ethereum spot ETF products in Hong Kong. What are Bitcoin/Ethereum spot ETFs: ⎡They are exchange-traded funds (high-liquidity funds, traded like stocks on trading days), mainly anchored to track the price of Bitcoin by holding a large amount of cryptocurrency spot. Similar to gold spot ETFs⎦.

These products made their first appearance in the Asian market, aiming to provide investors with investment returns closely related to the spot prices of Bitcoin and Ethereum. Virtual asset spot ETFs simplify the investment process and reduce the entry barrier. Professional fund management brings standardized investment operations and risk control systems. Investors can trade these ETF products on major securities trading platforms, reducing operational complexity and risk. In addition, these ETF products support physical subscription and redemption, allowing investors to indirectly own Bitcoin by holding ETF shares without worrying about private key storage and asset security issues.

Currently, these ETF products support cash or Bitcoin subscriptions, but operations must be conducted through corresponding accounts opened in Hong Kong. According to Caixin, in accordance with the joint announcement issued by the Securities and Futures Commission and the Hong Kong Monetary Authority in December 2023, both existing virtual asset futures ETFs and future spot ETFs are not allowed to be sold to retail investors in restricted areas such as mainland China. However, as long as mainland residents holding Hong Kong identity cards comply with relevant regulations, they also have the opportunity to participate in the trading of these ETF products.

Details of the Virtual Asset ETFs Issued by Three Asset Management Companies

What are the differences in the details of the cryptocurrency ETFs issued by the three institutions, and as an investor, which one should you choose for purchase and trading? We have compiled detailed information provided by a Hong Kong financial institution for your reference, so that investors can make their choices based on their own situations.

Listing Date and Issue Price:

All three companies' ETF products were listed on the same day, April 30, 2024. As for the initial issue price, both Huaxia Fund and CSOP Asset Management opened at $1, while Bosera Fund priced it at 0.0001 based on the CF Bitcoin Index price at the Chicago Mercantile Exchange on April 26 at 4:00 pm Hong Kong time.

Trading of Shares and Subscription Requirements:

In terms of the quantity of shares traded per lot, Huaxia Fund and CSOP Asset Management set the threshold at 100 shares, while Bosera Fund set it at 10 shares. As for the minimum subscription requirement, Huaxia Fund and Bosera Fund require a minimum of 10,000 shares, while CSOP Asset Management has a higher requirement of at least 50,000 shares.

Additional or Redemption Policies:

All three companies support investors to increase or redeem ETF shares with cash or physical assets, providing flexibility to investors.

Trading Currency and Management Fees:

Huaxia Fund supports trading in three currencies: USD, HKD, and RMB, while CSOP Asset Management and Bosera Fund support USD and HKD. In terms of management fees, Huaxia Fund charges a fee of 0.99%, CSOP Asset Management does not charge management fees for the first six months, and then charges 0.3%, while Bosera Fund waives fees for the first four months and then charges 0.6%.

Selected Index and Custodian Institution:

All three companies' ETF products have chosen the CF Bitcoin Index at the Chicago Mercantile Exchange as the tracking target to ensure that the performance of the products closely follows the actual dynamics of the Bitcoin market. In terms of custodians, Bank of China International's BOCI-Prudential Trustee is selected as the custodian for these ETFs, responsible for asset custody and fund operation supervision. As for the sub-custodian, Huaxia Fund and CSOP Asset Management have chosen OSL Digital Securities Limited, while Bosera Fund has chosen Hash Blockchain. This choice reflects the different preferences of each company for asset custody and risk management.

The "CF Bitcoin Index" is a specific index that reflects the weighted average price of Bitcoin on different exchanges. The choice of tracking the CF Bitcoin Index for Bitcoin and Ethereum spot ETFs mentioned here means that the purpose of these ETFs is to replicate the performance of this index as accurately as possible, providing investors with investment returns similar to purchasing actual Bitcoin, but in a more convenient and regulated manner.

The "sub-custodian" is usually another financial institution entrusted by the custodian to provide custody services in specific regions or for specific types of assets. Sometimes, due to legal, market practice, or operational efficiency reasons, professional sub-custodians are needed to handle specific custody functions. The primary and sub-custodian arrangement is mainly for managing efficiency and risk diversification, ensuring the security of fund assets, and adapting to the needs of different markets.

Trading Platforms, Market Makers, and Participating Securities Firms:

In terms of virtual asset trading platforms, Huaxia Fund and CSOP Asset Management have both chosen OSL Exchange, while Bosera Fund has chosen HashKey Exchange. As for market makers, Huaxia Fund has chosen Vivienne Court Trading, CSOP Asset Management has chosen China Merchants Securities (Hong Kong), China International Capital Corporation, and Virtu Financial Singapore, and Bosera Fund's market maker has not been disclosed. Participating securities firms play a key role in the circulation of ETF products. Huaxia Fund and CSOP Asset Management have chosen institutions including Victory Securities, Future Assets Securities (Hong Kong), Huaying Oriental (Asia) Holdings, ED&F Man Capital Markets, and Huasheng Capital Securities, while CSOP Asset Management has also selected China Merchants Securities (Hong Kong).

"Participating Securities Firms (APs)" are usually large financial institutions that work with ETF issuers to handle the subscription and redemption process of ETFs. Participating securities firms can provide a basket of stocks or other assets to the ETF in exchange for newly issued ETF shares, or redeem ETF shares for the assets held by the fund. This process helps ensure that the market price of the ETF is close to its net asset value (NAV) and helps provide liquidity and market efficiency.

Role of Audit Firms:

Finally, to ensure the financial transparency and compliance of the ETFs, Huaxia Fund and CSOP Asset Management have chosen PwC as the auditor, while Bosera Fund has chosen Ernst & Young. Through independent audit processes, auditors ensure the accuracy and truthfulness of the ETF's financial reports.

"Auditors" are independent third parties responsible for auditing the financial statements of ETFs to ensure their fairness, accuracy, and compliance with accounting standards. Through audits, auditors can detect and prevent errors and fraudulent activities in financial reports, providing investors with confidence in the financial condition of the ETF. In some jurisdictions, the auditor's audit report is a statutory requirement for disclosing ETF financial information to regulatory authorities and the public.

Bloomberg Statistics on the Asset Management Scale of the Three Companies

Asset Management Scale and Number of ETFs Issued:

According to Bloomberg Intelligence, Huaxia Fund's asset management scale in mainland China is $55.7 billion, and it has issued 84 ETFs in that region. In Hong Kong, Huaxia Fund manages $3.6 billion in assets and has issued 15 ETFs. CSOP Asset Management's asset management scale in mainland China has reached $10.3 billion, with 42 ETFs issued, while its asset management scale in Hong Kong is $16 million, with 4 ETFs issued. Bosera Fund's asset management scale in mainland China is slightly higher than CSOP Asset Management, at $10.7 billion, with 43 ETFs issued, and its asset management scale in Hong Kong is $4 million, with 6 ETFs issued.

With the increasing popularity of virtual assets, these ETF products in Hong Kong provide new opportunities for global investors and demonstrate Hong Kong's competitiveness as an international financial center in innovative financial products. For investors interested in investing in Bitcoin and Ethereum, these ETF products undoubtedly provide a noteworthy choice.

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